Digital Asset Basic Act

The Digital Asset Basic Act (Korean: 디지털자산기본법) is proposed South Korean legislation intended to establish a comprehensive legal framework governing digital assets, replacing the country's piecemeal, sector-by-sector regulation with a unified supervisory regime. Also called the General Act on Digital Assets, the Digital Asset Framework Act, and the Virtual Asset Phase 2 Act, the bill was introduced to the National Assembly by Representative Min Byeong-deok of the Democratic Party of Korea on June 10, 2025.^[1][2] It is designed as the second stage of Korea's virtual-asset legislation, following the investor-protection focused Virtual Asset User Protection Act, and its most distinctive feature is that it treats digital assets as a distinct asset class subject to differentiated regulation according to token type rather than a single undifferentiated approach.^[3]

As of the most recent legislative activity in 2026, the Digital Asset Basic Act was not law and remained under government–party consultation.^[3] The legislation would operate within a market of considerable scale: according to a Bank of Korea figure cited by the U.S. International Trade Administration, Korean individuals held approximately KRW 104 trillion (about USD 80 billion) in digital assets as of the end of 2024, equal to roughly 5 percent of national gross domestic product.^[2]

Legislative Background

The era of virtual assets in Korea is traced to the appearance of Bitcoin in 2008, and the country's regulatory response developed slowly and in stages.^[4] In 2017 the government issued a guideline prohibiting initial coin offerings (ICOs), a blanket ban that remained in place.^[4] The COVID-19 crisis and heavy investment by the younger "MZ generation" drew political attention to virtual assets and made them a significant issue in the 2022 presidential election, increasing pressure for statutory regulation.^[4] Because Korea's Capital Markets Act defined securities relatively narrowly, most virtual assets fell outside legal regulation, creating a regulatory gap that the eventual legislation was meant to close.^[4]

Korean lawmakers initially prepared a single comprehensive framework law but, faced with delays in passing the European Union's Markets in Crypto-Assets Regulation (MiCAR)—on which Korea's approach was modeled—and the collapse of the Terra/Luna stablecoin project, they chose to legislate in stages.^[4] The first stage, the Virtual Asset User Protection Act (VAUPA), was enacted in July 2023 as Act No. 19563 and took effect one year after promulgation, from July 2024.^[4][5] VAUPA rests on two pillars: the safe storage of users' virtual assets—requiring exchanges to segregate user deposits with a bank custodian, keep at least a portion of assets in offline cold wallets, and subscribe to insurance or reserve programs—and the regulation of unfair trading, prohibiting insider dealing, market manipulation, and fraudulent transactions with penalty surcharges of up to twice the profit gained and criminal penalties including imprisonment.^[4][5] Alongside VAUPA, digital assets were also governed by the Act on Reporting and Use of Specific Financial Transaction Information, which imposes anti-money-laundering and reporting obligations on virtual-asset service providers.^[6]

The Digital Asset Basic Act is the intended second-stage law converting this arrangement into a genuine framework statute.^[4] It is meant to resolve what the Financial Services Commission (FSC) described as a "regulatory void" by adding the disclosure rules and stablecoin regime absent from the first stage and by governing web3 finance and newly emerging digital-asset businesses.^[6][4] The bill sits within a broader regulatory environment that already includes VAUPA and live crypto-asset reporting requirements, and it is expected to interact with future initiatives such as spot Bitcoin exchange-traded fund (ETF) approvals, Security Token Offering (STO) frameworks, and a possible future Blockchain Basic Act.^[3] In January 2026 the National Assembly passed amendments to the Electronic Securities Act and the Capital Markets Act introducing token securities, meaning that securities-type real-world-asset products fall under the token-securities system and the Basic Act will need to define the boundary with non-securities digital assets.^[7]

Definition and Classification of Digital Assets

Article 3(1) of the draft defines a "digital asset" as "a property of economic value that is created and stored using distributed ledger technology or similar means and can be transferred electronically," explicitly excluding electronic money and similar instruments.^[1] The bill deliberately contrasts this with VAUPA's broader definition of a "virtual asset" as "electronic certificates (including all associated rights) that have economic value and that can be traded or transferred electronically," narrowing the concept to items created and stored on a distributed ledger and applying it to market coins and tokens.^[1][8] Article 2 provides for extraterritorial application, but expressly excludes it for the submission of issuance reports by overseas issuers, acknowledging the practical impossibility of enforcing such filings against foreign entities.^[1]

The bill divides digital assets into two principal categories under Article 3(2): "asset-linked digital assets," commonly referred to as stablecoins, and "general digital assets."^[1] Commentary on the bill has described the general category as further subdivided into payment tokens, utility tokens, and security tokens, each carrying different regulatory implications: payment tokens such as Bitcoin and Ethereum generally fall outside securities rules but face payment-services and anti-money-laundering oversight; utility tokens grant access to goods or services on a network and carry weaker investment characteristics; and security tokens satisfy the Capital Markets Act criteria for an "investment-contract security" and demand a higher level of investor protection.^[9] This differentiated taxonomy mirrors the approach taken by the EU's MiCAR, which the bill resembles by encompassing both stablecoins and other digital assets under a single unified regime.^[8]

Market Entry and Business Conduct

The Digital Asset Basic Act would replace the current registration approach under VAUPA with a positive authorization, or licensing, regime for market participants, scaled to the risk of each business type through a three-tier system of authorization, registration, or notification.^[3][1] The classification and entry requirements are drawn primarily from the Capital Markets Act while incorporating concepts from the Electronic Financial Transactions Act and the anti-money-laundering reporting law.^[1] Firms may operate several business types concurrently provided they establish a conflict-of-interest management system.^[1] Notably, rather than creating a separate exchange licence, the bill empowers the FSC to designate qualifying digital-asset brokers as digital-asset exchanges under Article 90(1).^[1]

The authorization tier covers the highest-risk activities—digital-asset trading (dealing on one's own account), brokerage, and custody.^[1] An applicant for the trading business must be a stock company under the Commercial Act (or an equivalent foreign business with a Korean branch), hold minimum paid-in capital of KRW 500 million, present a feasible and prudent business plan, employ qualified personnel and adequate IT security infrastructure, and satisfy officer-disqualification standards barring executives sanctioned under financial laws in the previous five years, while major shareholders must demonstrate financial capacity, a stable financial condition, and social credibility.^[1] The registration tier applies to collective management, wallet management, discretionary investment, and advisory businesses, with a lower minimum paid-in capital of KRW 100 million for collective management.^[1] The lightest notification tier covers order-transmission and non-personalized pseudo-advisory services.^[1] Under the authorization framework the FSC and the Financial Supervisory Service (FSS) would evaluate applicants on comprehensive standards of capitalization, operational capacity, cybersecurity, anti-money-laundering compliance, customer-service systems, risk management, and governance; the review is expected to take several months, comparable to banking-licence timelines in other jurisdictions.^[3]

The bill layers extensive prudential and conduct obligations over these tiers. Prudential provisions include an approval system for changes in major shareholders (Article 35), executive disqualification (Article 36), board composition and audit-committee requirements (Articles 37–38), internal control and compliance-officer rules (Articles 40–41), risk-management standards and a chief risk officer (Articles 43–44), financial and managerial soundness (Articles 47–48), restrictions on transactions with and undue influence by major shareholders (Articles 51–52), and information-security requirements including a Chief Information Security Officer and vulnerability assessments (Articles 55–57).^[1] Conduct rules require conflict-of-interest management, information barriers, a duty to explain, advertising controls, fee disclosure, recordkeeping, and confidentiality, along with activity-specific prohibitions such as self-dealing, arbitrary purchase and sale, and unauthorized restrictions on deposits and withdrawals.^[1] Commentary assesses that for established, well-capitalized exchanges the licensing requirement is unlikely to be prohibitively burdensome but will create material compliance costs, while existing VAUPA-registered exchanges would face transition periods—with grace periods discussed but unconfirmed—in which they must meet the new requirements or cease operations.^[3]

A separate government draft prepared by the FSC as a two-stage framework act would sharpen exchange liability by introducing a "no-fault liability" principle: in the event of an accident such as hacking or computer failure, exchanges would be liable for damages under the Electronic Financial Transactions Act unless there is intention or gross negligence on the part of the user, removing the prior possibility of immunity where an operator proved it had faithfully implemented security measures.^[6] This change would require bank-level security and financial soundness, and small and medium-sized exchanges lacking such capabilities are expected to be effectively removed from the market.^[6]

Issuance, Distribution, and Disclosure

The bill's issuance regime is one of its most consequential features because it re-legalizes ICOs.^[3] Issuance of general digital assets would be handled through a notification regime: an issuer files a standardized issuance report with the FSC, which conducts a formal procedural review before the asset may proceed (Articles 103–104).^[1] The report must contain information on the issuer and operating personnel, technical details, the intended industrial use and utilization plan, total and periodic issuance or mining volumes, and a user-protection plan.^[1] The bill replaces the previous voluntary whitepaper practice with this mandatory statutory report submitted to the FSC (Article 104(2)) and imposes liability for damages where a report contains false or misleading information (Article 106).^[1] This shift signifies the formal repeal of the 2017 blanket ban on ICOs, with civil liability for material misrepresentation and FSC guidance modeled on prospectus standards under the Capital Markets Act.^[1][3] Issuance rules do not apply to digital assets issued outside Korea (Article 102).^[1]

Listing and delisting—termed "trading support"—would be governed by a Trading Support Eligibility Review Committee established under the Korea Digital Asset Industry Association (Article 130).^[1] An exchange wishing to list an asset must apply to the committee, which must decide within one month (Article 110).^[1] Delisting reviews may be initiated by an exchange or by the committee on its own motion for reasons including inadequate disclosure, hacking, or potential harm to users, and an exchange must cease trading support if the committee so determines absent justifiable reason (Article 112).^[1] The committee's Trading Support Regulations are expected to reflect standards similar to the former unified guidelines of the exchange consortium DAXA and the Korea Exchange's listing rules.^[1] Disclosure operates on two levels: issuance reports are published through a centralized FSC platform, and exchanges must separately disclose the key features and trading-support review details of each listed asset (Article 113).^[1]

The bill extends market-abuse prohibitions to digital-asset markets, barring the use of material non-public information (Article 115), market manipulation (Article 117), fraudulent transactions (Article 119), and market disruption (Article 120), with civil liability for resulting damages (Articles 116, 118, 121).^[1] It defines targeted practices such as pump-and-dump schemes, wash trading, and spoofing, backed by civil and criminal penalties.^[3] It expressly carves out legitimate stabilization trades—conducted at the direction of an issuer or exchange for up to six months from the start of trading support—and market-making by trading firms at an exchange's request for up to one year.^[1] Enforcement mechanics remain incompletely defined, though the Korea Financial Intelligence Unit and other authorities are building surveillance capability that is expected to grow more sophisticated over time.^[3]

Stablecoin Regulation and Competing Bills

Stablecoins are the single most contested element of the legislation.^[3] The topic became a prominent policy issue during the June 2025 presidential election, in which the institutionalization of a Korean won-denominated (KRW) stablecoin was a campaign pledge of President Lee Jae-myung; following his election, legislative momentum accelerated.^[8] Under existing law, stablecoins are treated as ordinary virtual assets under VAUPA and their issuance is effectively prohibited; the Basic Act would define them as "asset-linked digital assets" linked to the value of the won or a foreign currency and guaranteeing redemption, and would require issuers to obtain FSC authorization (Articles 103–104).^[8][1] Under Min's bill, a stablecoin issuer would need to be a domestic corporation with minimum paid-in capital of KRW 500 million (about USD 360,000), maintain adequate refund reserves, present a credible business and repayment plan, and file a registration statement detailing technical infrastructure, issuance limits, and redemption mechanisms.^[8] The government's parallel Framework Act would set a higher capital requirement of around KRW 5 billion, require reserves of "more than 100 percent" of the issued balance held in trust at a bank and insulated from the issuer's bankruptcy, and prohibit paying interest to users, measures aimed at preventing a "second Terra-Luna incident."^[6]

Two policy questions dominate the stablecoin debate. The first is who may issue: whether issuance should be limited to banks or extended to qualified fintech companies.^[3] The ruling Democratic Party has been more sympathetic to non-bank participation, viewing authorization as an innovation opportunity, while government agencies and the Bank of Korea emphasize financial stability, warning that permitting large technology conglomerates to issue stablecoins could amount to "narrow banking" and undermine Korea's principle of separating commerce and finance.^[3][8] A likely resolution is a compromise permitting both banks and specially qualified fintech firms under differentiated standards, or limiting issuance to consortia in which banks hold a controlling stake; major technology companies and exchanges have entered negotiations with banks to form such consortia.^[3][8] One government draft reviewed an option for banks to hold "50 percent plus 1 share" of an issuer.^[10] The second question concerns issuer governance and equity limits, including proposals to prohibit any single shareholder from owning more than 10–15 percent, though precise figures remain unsettled.^[3]

Supervisory authority over stablecoins was addressed through a compromise with the Bank of Korea using a designation system of "important digital payment tokens": where a token's user base or issuance size is large enough to affect monetary policy—with analogous thresholds cited of roughly KRW 8 trillion in the EU and more than KRW 14 trillion in the United States—the central bank would gain the right to request data and conduct joint inspections.^[6] International comparisons feature prominently, with commentators pointing to the EU's MiCAR and the Monetary Authority of Singapore as models of nuanced, differentiated stablecoin regulation.^[3]

The Basic Act is one of several competing bills reflecting differing regulatory philosophies. Alongside Min's proposal, the Issuance and Distribution of Value-Stabilised Digital Assets Act, sponsored by Representative Do-geol Ahn in July 2025, focuses exclusively on stablecoins, imposes a KRW 5 billion capital requirement, prohibits paying interest, and requires monthly reserve disclosures.^[8] The Act on Payment Innovation through Stable Digital Assets, introduced by Representative Eun-hye Kim in July 2025, also requires KRW 5 billion in capital and grants holders redemption rights enforceable within 10 days.^[8] A key distinction among the three is their treatment of foreign-issued stablecoins: the Basic Act is the most restrictive, requiring foreign issuers to establish