SouthKorea's struggle with digital currency: insufficient short-term government bonds for stability
Korea Pursues Innovative Solutions for Stablecoin Market
The Korea Capital Markets Institute has published a report highlighting the potential for Korean stablecoins, addressing the challenges posed by the limited size and poor liquidity of the monetary stabilization bonds (MSBs) market.
The current structure of Korea's government bond market, with approximately 45% of bond issuance having maturities of five years or less, constrains liquidity provision and limits the use of MSBs as stablecoin collateral. However, South Korea is taking proactive steps to overcome these obstacles.
One key solution is the development and institutional adoption of won-pegged stablecoins backed by major Korean banks and fintechs. Major players such as KB Kookmin, Shinhan, Hana, Woori, and Kaia Blockchain are actively shaping won stablecoins and payment systems.
The Financial Services Commission (FSC) is also preparing a bill, expected in October 2025, which will provide clear guidelines for issuance, collateral requirements, and operational controls for won-backed stablecoins. This bill may institutionalize collateral approaches beyond MSBs, helping provide the structural stability needed for stablecoins without depending on limited MSB liquidity.
Partnerships with major global stablecoin issuers like Tether and Circle are also being explored to enhance liquidity and operational scale. Collaborations with these entities can bring additional liquidity sources and market expertise, mitigating the limitations of the current Korean government bond market's size.
Another approach is the tokenization of real-world assets (RWAs) to diversify collateral bases. South Korea's policies and financial sector innovation are embracing RWA tokenization, which can include government bonds, commercial paper, or corporate debt, potentially boosting collateral availability beyond the narrow MSB market.
Despite the challenges, both major political parties in Korea have tabled stablecoin bills, demonstrating a commitment to the development of the stablecoin market in Korea. The US GENIUS Act for stablecoins has also been passed, which may influence Korea's regulatory framework.
In conclusion, South Korea is addressing the challenges in its MSBs market by pushing forward with a dedicated won-pegged stablecoin legal framework, bank-fintech collaborations, international stablecoin partnerships, and diversified collateral models like RWA tokenization. These initiatives aim to create a robust ecosystem for stablecoins rather than relying exclusively on MSBs and the traditional government bond market.
- The Korea Capital Markets Institute's report underscores the potential of Korean stablecoins, suggesting that the limited size and poor liquidity of monetary stabilization bonds (MSBs) pose challenges.
- The Financial Services Commission (FSC) is working on a bill, due in October 2025, that will offer clear guidelines for won-backed stablecoins, potentially institutionalizing collateral approaches beyond MSBs.
- Partnerships with global stablecoin issuers like Tether and Circle are being considered to increase liquidity and operational scale in the Korean stablecoin market.
- Tokenization of real-world assets (RWAs) is another strategy being adopted to diversify collateral bases, potentially boosting collateral availability beyond the MSB market.
- Both major political parties in Korea are supportive of the development of the stablecoin market, as shown by the stablecoin bills they have tabled, and the US GENIUS Act for stablecoins may influence Korea's regulatory framework.
