[Stablecoin Supervision] ① Industrial Promotion or Financial Regulation...the Line Is Drawn by "Consumer Protection"

Ruling Party and Government in Final Talks on the Basic Act on Digital Assets
Issuers and Governance Tilted Toward "Stability"
Seeking a "Korean-Style Model" Between Innovation and Stability
"Consumer Protection Will Determine the Success or Failure of Institutionalization"

Editor's NoteThe Democratic Party of Korea's second-phase virtual asset legislation, the "Basic Act on Digital Assets," which will be proposed at the end of this month, is expected to be a watershed in determining how to incorporate stablecoins into the financial order. The core of the legislation is to expand beyond the first-stage management framework focused on anti-money laundering, toward a comprehensive regulatory regime that encompasses both the establishment of market order and investor protection. In particular, depending on whether stablecoins, which are linked to currency value and perform payment and settlement functions, are regarded as an industry or defined as financial infrastructure, the basic framework of the system design - including the issuer, ownership structure, reserve asset rules, and allocation of supervisory authority - could differ significantly. At this point, a "Korean-style supervisory model" that can realize consumer protection in a substantive way, while balancing innovation and stability, is desperately needed. In this context, The Asia Business Daily analyzes the key issues in stablecoin regulation and presents a blueprint for designing an appropriate supervisory framework that can secure market trust.

Should they be viewed as an industry, or as financial products?

Experts analyze that the direction of system design can change completely depending on how one views stablecoins. This is because the overall framework of institutional design, including not only issuance eligibility and ownership structure but also reserve requirements and the allocation of supervisory authority, can differ. The decisive criterion that separates the two sides of the debate is ultimately "consumer protection." Experts agree that, in order to strike a balance between fostering an innovative industry and maintaining financial stability, consumer protection must be a prerequisite.

Disagreements over issuer and equity regulations...tug-of-war between stability and innovation

According to the financial sector and political circles on the 22nd, the Democratic Party of Korea's digital asset task force (TF) plans to finalize its legislative proposal for the Basic Act on Digital Assets on the 24th after holding an advisory committee meeting. There are two main points of contention where the government bill and the political bill clash. One is the plan to limit the equity stake of major shareholders of exchanges to 15-20%, and the other is whether to mandate that banks hold "50%+1 share" of the equity in stablecoin-issuing consortia.

The Financial Services Commission is reviewing a requirement that issuance be allowed only for consortia in which banks hold more than "50%+1 share." In contrast, some in the political sphere argue that this amounts to favoring a specific industry segment and could become a regulation that undermines founders' responsible management and innovation.

Nevertheless, experts broadly agree that a consortium model in which banks hold a certain level of leadership is an appropriate issuance structure.

Kim Youngsik, Professor of Economics at Seoul National University, evaluated that, regarding the key issue of who should be the issuer under the Basic Act on Digital Assets, a consortium model that simultaneously takes into account stability and innovation could be a realistic compromise. He noted, "We need a structure in which stability is underpinned by the existing banking sector and innovation is driven by fintech," adding, "A model that combines fintech's technological capabilities on top of the trust foundation of banks is a realistic alternative." The logic is that if banks hold effective decision-making authority, stability can be secured, and that stability can, in turn, translate into consumer protection.

Lee Jeongdoo, Senior Research Fellow at the Korea Institute of Finance, also said that, as seen in the past cases of introducing internet-only banks and comprehensive investment platforms, a consortium structure led by banks is realistic. He explained, "When internet-only banks were introduced, the key issue was also how to harmonize the stability of the existing financial sector with the innovativeness of fintech," and "in the end, they were established in the form of bank-led consortia." He added, "For stablecoins as well, it is desirable to adopt a structure that combines the stability of large financial institutions with capital strength and accountability, and the technological capabilities and know-how of fintech and virtual asset businesses," and "when forming consortia, it is also possible to grant additional points to such elements."

Park Yongbeom, Professor at Dankook University and President of the Korea Blockchain Society, said, "The crux of the matter is whether to view stablecoins as finance or as a product of technological development," and added, "If you look at the issuer from the perspective of industrial development, a bank-centered structure may be realistic in terms of stability and consumer protection." The reasoning is that if stablecoins are interpreted as financial products, they will naturally fall under the financial law framework and inevitably be designed around a bank-centered structure.

However, Professor Park argued that, rather than definitively labeling stablecoins as one pillar of the financial industry, they should be interpreted as technology infrastructure or part of future preparedness. He stressed, "Stablecoins are an extension of the development of cryptocurrency technology, and it is difficult to regard them as an advancement of traditional finance," adding, "From the standpoint of preparing for our future, we need to set the direction from a technology development perspective, rather than simply asking what is lacking in finance." In other words, stablecoins should be viewed as part of the development process of the technology industry, but on the condition that strong consumer protection mechanisms are put in place in advance.

Allow innovation but strengthen safeguards...international standards also emphasize consumer protection

The key question is how, and to what extent, consumers can be protected in the process of bringing stablecoins into the regulated system. If industrialization is rushed without sufficient safeguards, some coins may appear and then disappear under the banner of new technology, and the resulting damage could be passed on entirely to consumers.

International standards also recommend placing consumer protection and financial stability at the center of system design. The International Organization of Securities Commissions (IOSCO) has presented the principle of "Same Activity, Same Risk, Same Regulation" in its crypto-asset regulatory principles. The idea is that if stablecoins perform functions similar to payment, then they should be subject to corresponding supervision, disclosure requirements, and reserve transparency.

In particular, IOSCO sets out as core principles: holding reserves in safe assets; ensuring 1:1 redemption capability; preventing conflicts of interest; segregating customer assets; and maintaining a transparent disclosure regime.

Professor Park said, "It is not easy to rapidly grow an industry while at the same time perfectly protecting consumers," but added, "That does not mean we can avoid this difficult problem." As an alternative, he proposed a phased expansion using a sandbox approach. He argued that an approach of conducting small-scale experiments and then expanding gradually is needed.

Research Fellow Lee likewise said, "If stablecoins become linked to the traditional financial system, ensuring user protection becomes crucial, and this requires concrete regulations on matters such as the management and verification of reserve assets and enhancing the convenience of redemption."

However, he also suggested that it is difficult to regard stablecoins as identical to bank deposits, and that incorporating them into the banking law framework would be highly burdensome in practice. He explained, "The structure is similar to services such as Kakao Pay and Naver Pay, where users deposit prepaid balances and use them in the form of 'money'," and "given their nature, it is more reasonable to regulate them under the Electronic Financial Transactions Act framework rather than under banking law." He went on to say, "We must not confuse the legal framework with the governance structure," and added, "Equity requirements and the allocation of supervisory authority should be treated as separate matters for policy judgment."

The task force also views balancing industrial promotion and consumer protection as a core challenge. Ahn Dogeol, a Democratic Party of Korea lawmaker and secretary of the task force, said, "We will adopt a structure in which the banking sector holds the leadership as the basic framework, while fully reflecting the views of the fintech and virtual asset industries," and added, "We will coordinate the government bill and the task force bill in a direction that captures both stability for consumer protection and innovation." He explained further, "The framework will be designed so that banks can secure trust based on accountability and capital strength, while fintech firms can play the role of 'accelerators' of technological innovation."