The Korean Model 🇰🇷
Why Seoul is betting its economic future on digital assets
When former President Yun Suk-yeol declared martial law on that bizarre December evening in 2024, sending troops to the National Assembly and attempting to start a war with North Korea, he probably didn't expect his political suicide to spark one of the world's most aggressive crypto policy agendas.
But that's exactly what happened.
The two-hour coup attempt that ended in impeachment created a power vacuum filled by Lee Jae-myung, a former provincial governor with a reputation for disruption. With a unified government and clear mandate, Lee's administration introduced the Digital Asset Basic Act within days of taking office and began dismantling eight years of corporate crypto restrictions.
There’s something you need to know about South Korea, before we start with the deep dive. It is a technologically advanced economy with a crypto-literate population facing traditional economic challenges that conventional monetary policy hasn't resolved. Crypto offers both a response to immediate economic pressures and a foundation for longer-term competitive advantage.
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Over 16 million South Koreans now hold cryptocurrency accounts. That’s more than the country's 14.1 million stock investors. For the first time in the nation's history, digital assets had overtaken traditional equities in terms of retail participation.
Nearly one-third of South Korea's population trades crypto. Among adults under 60, that figure rises to over half. Twenty percent of government officials now disclose combined crypto holdings worth approximately $9.8 million. According to a report by the Hana Institute of Finance, 27% of South Koreans aged 20–50 own crypto, with digital assets making up 14% of their total financial portfolios.
It is the culmination of years of growing crypto adoption driven by economic pressures, technological familiarity, and a political system that finally decided to embrace rather than resist this shift.
The Economic Foundation
South Korea's crypto embrace stems from genuine economic pressures that traditional policy tools have failed to address. The country projects 0.8% GDP growth in 2025. These are numbers typically seen only during major financial crises. Youth unemployment rose to 7.5% in March, the highest for that month since 2021.
South Korea’s national Debt-to-GDP is moving toward 47–48%, up post-pandemic, now stabilising. As of late 2024, Korea’s household debt was 90–94% of GDP, among the highest globally, and is cited as the top among major advanced economies and Asian countries. This contrasts sharply with other major economies where government debt exceeds household debt. The US has household debt at 69.2% versus government debt at 128%, while Japan's government debt reaches 248% compared to household debt of just 65.1%. South Korea's inverted debt structure creates unique economic pressures where individual financial stress rather than sovereign fiscal concerns drives policy decisions.
When interest rates rise and economic growth stagnates, this debt burden becomes a drag on consumer spending that monetary policy alone cannot fix.
For millions of young Koreans, crypto represents what researcher Eli Ilha Yune calls "financial desperation" — not ideological support for blockchain technology, but a practical response to an economy that offers few alternatives for wealth creation. Traditional investments like stocks offer minimal returns, real estate remains unaffordable, and the national pension system faces long-term viability questions.
This context explains why crypto adoption in South Korea differs from other markets. While Western investors often view crypto as portfolio diversification or technological speculation, Korean investors see it as essential financial infrastructure. The government's crypto policy is responding to adoption that has already occurred.
Lee's administration has framed its crypto agenda around preventing Korean wealth from flowing overseas through dollar-denominated digital assets. Currently, when Korean investors buy stablecoins, they predominantly purchase USDT or USDC, effectively exporting capital to US-controlled financial infrastructure.
South Korean crypto exchanges transferred around 56.8 trillion won (~$40.6 billion) in digital assets overseas in the first quarter of 2025. Stablecoins accounted for 26.87 trillion won (~$19.1 billion), almost half (47.3%) of all digital assets sent abroad. .
Interestingly, this capital outflow occurs despite the Korean won's relative strength. The KRW has gained roughly 6.5% against the dollar in 2025, trading around ₩1,393-1,396 per USD as of July. This suggests Korean investors' preference for dollar-denominated stablecoins isn't driven by currency weakness but rather by the lack of won-denominated alternatives and the global dominance of USD-based crypto infrastructure.
The Digital Asset Basic Act creates a regulatory framework for Korean companies to issue won-backed stablecoins. The capital requirements are: 500 million won (approximately $370,000) allows firms to enter the stablecoin market. This low barrier aims to encourage domestic competition while maintaining minimum standards.
Does the won-backed stablecoin strategy actually prevent capital flight? Koreans can still convert won to USDC if they want dollar exposure. So, instead, it aims to reduce demand for foreign stablecoins by offering similar benefits (programmability, DeFi access, 24/7 trading) without currency conversion. More importantly, it keeps the financial infrastructure domestic — fees, custody, and services flow to Korean institutions rather than Circle or Tether. It's behavioural nudging rather than capital controls, making won-denominated options more convenient while keeping the financial plumbing under Korean oversight.
Eight major Korean banks are already collaborating on a won-pegged stablecoin targeting launch by late 2025 or early 2026. The consortium includes KB Kookmin, Shinhan, Woori, Nonghyup, Industrial Bank of Korea, Suhyup, K Bank, and IM Bank. Their goal isn't just to compete with USDT and USDC, but to create financial infrastructure that keeps Korean economic activity within Korean systems.
The stablecoin strategy reflects broader concerns about dollar dominance in digital finance. Currently, 99% of global stablecoins are pegged to the US dollar, giving American financial institutions and regulators disproportionate influence over digital asset infrastructure.
The Bank of Korea has expressed reservations about privately issued stablecoins, warning they could "seriously weaken the effects of monetary policy and pose a systemic risk." This disagreement contributed to the suspension of Korea's central bank digital currency (CBDC) project in June, as officials questioned the need for a state-run CBDC when private alternatives might serve similar functions more efficiently.
Institutional Transformation
In 2017, South Korea imposed restrictions preventing businesses, institutions, and financial companies from opening cryptocurrency exchange accounts due to concerns about speculation and money laundering. Only individuals could trade crypto using verified real-name accounts. Institutional and corporate accounts were blocked, and banks faced strict compliance obligations. The administration has initiated a staged process to lift these restrictions.
Initial phase (mid-2025): Nonprofit organisations and certain public agencies are now permitted to monetise crypto received via donations or seizures, provided they meet rigorous compliance measures, such as verified, real-name Korean-won exchange accounts and internal review committees.
By late 2025, the government will extend eligibility for crypto exchange accounts to about 3,500 listed companies and professional institutional investors through a pilot program.These accounts must be real-name verified and subject to strict anti-money laundering (AML) and know-your-customer (KYC) protocols. Financial authorities have announced that public companies will finally be allowed to participate directly in crypto exchanges, enabling corporate adoption at scale.
Major domestic exchanges have launched or upgraded “institutional-grade” products, custody solutions, and support services in anticipation of increased demand from large corporations and professional investors.
For now, traditional financial institutions such as banks, asset managers, and brokerages remain excluded from direct crypto trading. This setup ensures that the first wave of Korean institutional crypto activity will be led by non-financial corporations, potentially giving them a competitive edge as regulatory doors gradually open further.
The Political Validation
Lee's crypto agenda enjoys broad political support that extends beyond his Democratic Party. Both major parties promised to legalise crypto ETFs during the recent election campaign — a rare moment of bipartisan consensus in Korean politics. The Financial Services Commission, which previously opposed crypto ETF discussions, has now submitted a roadmap for approving spot Bitcoin and Ethereum ETFs by the end of 2025.
This political shift reflects crypto's role as a significant voter issue. With over 16 million crypto holders representing roughly one-third of the population, digital asset policy has become mainstream politics rather than niche technology policy.
The government has also moved to support crypto businesses more broadly. The Ministry of SMEs and Startups announced plans to lift restrictions preventing crypto companies from qualifying as venture businesses, allowing them to access significant tax benefits including 50% corporate income tax cuts for five years and 75% real estate acquisition tax reductions.
Korean investors have responded enthusiastically to policy developments. Bank stocks surged following stablecoin trademark filings. Kakao Bank rose 19.3% on the day after filing crypto-related trademarks, while KB Financial Group gained 13.38% following similar applications.
Even more dramatically, Korean retail traders poured nearly $450 million into Circle Internet Group shares in June, making it the most heavily bought overseas stock that month. Circle's stock rallied over 500% since its June debut, as Korean investors treated it as a proxy for global stablecoin adoption.
This investment pattern reflects sophisticated understanding of how Korean stablecoin policies might drive global demand for stablecoin infrastructure. Korean investors are positioning for Korea's potential influence on global digital asset markets.
Lee's crypto strategy faces significant external pressures. US President Donald Trump's threat of reciprocal tariffs potentially reaching 50% could severely impact Korea's export-dependent economy. With exports representing 40% of GDP, trade disruption could trigger recession conditions that would limit capital available for crypto investment regardless of regulatory improvements.
The timing creates a race between policy implementation and economic deterioration. Korean authorities are rushing to establish crypto infrastructure before potential trade conflicts make the economic environment too challenging for new investment initiatives.
Domestically, the central bank's opposition to private stablecoins could create ongoing regulatory tension. Bank of Korea officials prefer that stablecoin issuance remain under banking supervision rather than allowing technology companies to enter monetary infrastructure.
Tax policy also remains unsettled. A planned 20% capital gains tax on crypto profits above 2.5 million won annually has been delayed multiple times but remains scheduled for implementation. How this tax interacts with new corporate crypto access rules will influence institutional adoption patterns.
The global implications of Korea's approach to crypto policy is being watched internationally as a potential model for other countries facing similar economic pressures and technological adoption patterns. The combination of regulatory clarity, institutional access, and domestic stablecoin infrastructure represents a comprehensive approach to digital asset integration.
If successful, Korea's model could influence policy development in other Asian economies and provide a template for countries seeking to maintain monetary sovereignty while embracing digital asset innovation.
I’ll see you next week with another curious case.
Until then … HODL tight,
Thejaswini
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