KRW Stablecoins
KRW stablecoins are a category of cryptocurrency designed to maintain a 1:1 value ratio with the South Korean won (KRW). Their development is primarily driven by South Korean government initiatives and major domestic technology and financial corporations aiming to integrate the won into the global digital economy, enhance national monetary sovereignty, and create efficiencies in digital payments. [1] [2]
KRWQ is currently the largest live Korean-won-pegged (KRW) stablecoin on public blockchains as of late 2025. While several KRW stablecoin initiatives exist or are in development, most have limited circulation or remain in early stages compared with KRWQ. [11] [12]
Overview
The push for a Korean won-pegged stablecoin market gained significant momentum in 2025. Following the election of President Lee Jae-myung in June 2025, the administration identified the development of a private sector-led stablecoin market as a key national initiative to counter the dominance of U.S. dollar-pegged stablecoins. [2] [3] This policy direction was further solidified in late June 2025 when the Bank of Korea (BOK), the nation's central bank, announced it was halting its central bank digital currency (CBDC) project to avoid overlap with private sector innovation. [4]
Proponents believe that a well-regulated, on-chain KRW can address unique market inefficiencies like the "Kimchi Premium" - a phenomenon where cryptocurrencies trade at higher prices on South Korean exchanges due to capital controls. A liquid KRW stablecoin could theoretically enable traders to perform instant arbitrage, thereby aligning local and global prices. [1] Additionally, these stablecoins are seen as a vehicle to increase the global utility of the Korean won in decentralized finance (DeFi) and cross-border commerce. [3]
Despite strong government and corporate interest, the development of the market is constrained by significant legal and regulatory challenges. While several projects have launched for international markets or are in advanced development stages, they operate in anticipation of a domestic legal framework that has been subject to delays and intense debate among regulatory bodies. [5] [4]
Regulatory Landscape and Legislation
The Proposed Basic Digital Asset Act
The primary legislative effort to regulate the sector is a bill tentatively titled the "Basic Digital Asset Act," which is being drafted by the Financial Services Commission (FSC), the country's main financial regulator. This act is intended to create the legal foundation for the issuance and circulation of won-pegged stablecoins. However, the FSC missed a December 10, 2025 deadline set by the ruling Democratic Party to submit the bill. An FSC spokesperson cited the need for more time to coordinate with other government agencies. The ruling party has stated its commitment to introduce a consolidated bill to the National Assembly by the end of January 2026. [5]
The FSC's caution is partly informed by the 2022 collapse of the Terra-LUNA ecosystem, which has made regulators wary of potential market shocks and risks to financial stability. [1]
Inter-Agency Conflict
A major cause for the legislative delay is a significant disagreement between the Financial Services Commission (FSC) and the Bank of Korea (BOK) over issuer eligibility and regulatory oversight.
Issuer Eligibility Debate
The central point of contention is who should be permitted to issue KRW stablecoins.
- The Bank of Korea (BOK) has expressed strong reservations about allowing large technology firms to issue stablecoins, fearing it could undermine its control over national monetary policy. The BOK has reportedly endorsed a restrictive model where issuance would be limited to consortia in which domestic banks hold at least a 51% stake. [5] This "banks-only" stance has been a consistent point of friction with the private sector. [2]
- The Financial Services Commission (FSC) opposes the bank-only restriction, arguing there is a lack of global precedent for such a model. The FSC points to regulatory frameworks in the European Union and Japan, where fintech companies are major issuers of stablecoins. [5] Dr. Sangmin Seo, Chair of the Kaia DLT Foundation, has argued that allowing non-bank entities to issue stablecoins under clear rules would foster greater competition and innovation. [3]
Regulatory Authority Dispute
Beyond issuance, the two agencies are also in conflict over regulatory power. The BOK is seeking the power of veto over all stablecoin issuance approvals and the authority to conduct independent spot checks on issuers. The FSC, conversely, believes its own approval should be sufficient and is reluctant to grant the central bank direct oversight and veto rights. [5]
The Foreign Exchange Transactions Act
The most significant legal hurdle for the international use of KRW stablecoins is South Korea's long-standing Foreign Exchange Transactions Act. Implemented after the 1997 Asian Financial Crisis to control speculative capital flows and maintain financial stability, this law mandates that all foreign exchange transactions involving the Korean won must be conducted "onshore" through licensed domestic financial institutions. [4]
This "onshore-only" policy has severe implications for stablecoins:
- It effectively makes it illegal for a KRW stablecoin to be listed on global exchanges or used for cross-border settlement, as such activities would be interpreted as unlicensed offshore foreign exchange dealings.
- It directly undermines the primary use case of arbitraging the Kimchi Premium, which requires seamless swapping between a KRW stablecoin and other stablecoins (like USDC or USDT) on global, on-chain platforms.
- It raises concerns about illicit capital flight, a key reason for the government's cautious approach.
This regulatory environment contrasts with that of Hong Kong, where the freely convertible Hong Kong dollar faces no such restrictions, but is similar to the situation in Taiwan, where capital controls also limit the utility of a potential NTD-pegged stablecoin for global use. [4] An Wan-seok, CEO of BxB Inc., has stated that for a KRW stablecoin to be successful, it must be listed on global exchanges, directly highlighting this conflict with existing law. [1]
Live Stablecoin Projects
While domestic issuance is pending legalization, several KRW-pegged stablecoins have been launched outside of South Korea for the global DeFi market, designed with future Korean regulations in mind.
KRWQ (by IQ and Frax)
On October 29-30, 2025, IQ and Frax Finance announced the launch of KRWQ, a stablecoin pegged 1:1 to the Korean won, in a partnership powered by LayerZero. [6] [7] According to a co-founder of IQ, "KRWQ fills a critical gap in the market. While USD-backed stablecoins dominate today, no credible won-denominated stablecoin has ever launched at scale." [6] In December 2025, the project was featured in Messari's "2026 Crypto Theses" annual report, which highlighted it as the first multichain KRW stablecoin using LayerZero's OFT standard. [8]
Key features of this project include:
- Technology: KRWQ is built as a multi-chain native asset using LayerZero's Omnichain Fungible Token (OFT) standard. This allows it to exist as a unified asset across more than 150 blockchains, with transfers between them enabled via the Stargate bridge. It was launched as the first won-denominated stablecoin on Base, Coinbase's Layer-2 network. [7]
- Market Access: Due to the regulatory uncertainty in South Korea, KRWQ is not marketed or offered to residents of the country. Minting and redemption are restricted to eligible KYC'd institutional counterparties, such as exchanges and market makers. [7]
- Initial Listing: The first on-chain market for the Korean won was created with a KRWQ-USDC liquidity pool launched on Aerodrome, a decentralized exchange on the Base network. [7]
- Settlement Infrastructure: On December 15, 2025, KRWQ was integrated into FraxNet, Frax Finance's cross-chain settlement layer. This integration provides KRW-USD settlement rails, enabling on-chain conversions between KRWQ and frxUSD. [9]
This launch aimed to create a scalable, won-denominated stablecoin for global DeFi markets while positioning for future domestic adoption. [6] [3]
KRW1 (by BDACS)
KRW1 is another won-pegged stablecoin issued by BDACS, a South Korean crypto custodian. The project conducted a proof-of-concept with Woori Bank prior to its launch. In September 2025, KRW1 was launched on the Avalanche blockchain. In late October 2025, BDACS announced plans to also issue KRW1 on Circle's new institutional blockchain, Arc. [3]
Corporate Conglomerate Initiatives
Corporate Conglomerate Initiatives
South Korea's dominant IT conglomerates, Kakao and Naver, are leveraging their vast user bases to develop stablecoin projects focused on payments and digital finance.
Kakao Group Initiative
Kakao, through its subsidiary KakaoBank, is actively developing the infrastructure for a KRW-pegged stablecoin. As of late November 2025, reports indicated the bank was building a technical foundation for on-chain financial services, including a smart contract-based foreign exchange (FX) settlement system that could support a stablecoin. [10] The bank's project advanced to the "actual development stage," with KakaoBank posting job recruitments for blockchain service developers. [2] The initiative includes a partnership with Kaia—the blockchain formed from the merger of Kakao's Klaytn and LINE's Finschia network. In November 2025, Sam Seo, chairman of the Kaia DLT Foundation, confirmed that Kaia was in discussions for a KRW stablecoin proof-of-concept (POC) with several teams, noting that Kakao would be a collaboration partner. [10]
The conglomerate has made several moves signaling its intent. In June 2025, KakaoPay filed copyright applications for six potential stablecoin ticker symbols: PKRW, KKRW, KRWP, KPKRW, KRWKP, and KRWK. [2] In August 2025, Kaia filed trademark applications for at least four stablecoin names: "KRWGlobal," "KRWGL," "KRWKaia," and "KaKRW." [10] The Kakao project is reportedly being built on a private, permissioned version of Ethereum in partnership with Consensys, with an initial focus on treasury services for Kakao's ecosystem companies. The potential for adoption is significant, given Kakao's vast user base across its chat and payment applications. [1] [10]
Naver and Upbit Initiative
Naver, Kakao's primary rival, is also pursuing a stablecoin strategy through its fintech arm, Naver Financial (operator of Naver Pay). In July 2025, it was reported that Naver Pay was collaborating with Dunamu, the parent company of South Korea's largest crypto exchange, Upbit, to develop a payments business centered on a KRW stablecoin. An official from Dunamu confirmed the collaboration, stating, "We will specify the scope and methods of cooperation as soon as the relevant system is established," indicating the project's dependence on regulatory clarity. Naver Pay has a user base of 30 million monthly users. [1] [2]
Market Purpose and Viability
The intended use cases for KRW stablecoins face considerable hurdles due to South Korea's existing financial infrastructure and regulatory framework.
Addressing the "Kimchi Premium"
A primary theoretical benefit of a KRW stablecoin is its potential to eliminate the "Kimchi Premium." This premium arises from capital controls and friction in moving KRW out of the country, leading to higher crypto prices on local exchanges. A globally accessible KRW stablecoin would allow for immediate arbitrage, closing this price gap. However, this use case is directly obstructed by the Foreign Exchange Transactions Act, which prevents the necessary offshore trading of the won. [1] [4]
Cross-Border Payments
While a core function for major stablecoins like USDC and USDT, cross-border settlement using a KRW stablecoin is similarly blocked by the "onshore-only" policy. This severely limits the international appeal and utility of any KRW-pegged token, effectively confining it to the domestic market for most payment purposes. [4]
Domestic Payments
For domestic use, a KRW stablecoin offers limited advantages over the current system. South Korea already possesses a highly advanced and efficient real-time payment network. Interbank transfers are instantaneous, operate 24/7, and are typically free for consumers. A stablecoin-based system would struggle to offer a significant improvement in either speed or cost for domestic peer-to-peer or consumer-to-business transactions. [4]