South Korea is moving toward a cautious approach to stablecoins, with regulators likely to let banks issue them before nonbank crypto firms, according to S&P Global Ratings. The credit ratings agency said Thursday that South Korea's preference for bank-led issuance would lean on existing supervision and risk controls, a path that differs from proposals in the US and European Union that give nonbanks a bigger role.
Stablecoins are cryptocurrencies designed to hold a steady value, typically pegged one-to-one with a fiat currency like the US dollar or South Korean won. They are backed by reserve assets, such as cash or government bonds, to maintain that peg. Under South Korea's emerging framework, those reserves could include a meaningful slice of bank deposits, S&P said.
What a Bank-First Approach Means
If banks lead stablecoin issuance, early use cases are likely to be institutional, such as cross-border payments and wholesale settlement, rather than retail trading. That would tie these tokens more tightly to the traditional financial system, S&P noted. Banks already have the infrastructure for custody, compliance, and risk management, making them a natural starting point for regulators who want to avoid the turmoil seen in unbacked crypto markets.
The approach contrasts with the US, where nonbank issuers like Circle and Paxos have dominated, and the EU's Markets in Crypto-Assets (MiCA) regulation, which allows both banks and nonbanks to issue stablecoins under certain conditions. South Korea's bank-first stance could give it a more controlled rollout, but it also introduces new dynamics for the banking sector.
Deposit Competition and Stability Risks
S&P's analysis highlights a potential downside: if stablecoin reserves are held as bank deposits, then demand for the coins adds deposits somewhere, and redemptions pull deposits back out quickly. In a stressed market, those flows may not be shared evenly. Deposits tend to gravitate toward banks perceived as safer, leaving weaker lenders more reliant on costlier borrowing. That could widen gaps in funding stability, bank credit spreads, and ultimately profitability across South Korea's banking sector.
This is not a hypothetical risk. During the 2023 US regional banking crisis, deposit flight accelerated at smaller banks after the collapse of Silicon Valley Bank, as customers moved money to larger institutions. A similar dynamic could play out in South Korea if stablecoin redemptions trigger rapid deposit shifts. S&P's warning is that putting banks in charge of stablecoins may sound conservative, but it can shift where cash sits inside the banking system in ways that are not evenly distributed.
For context, South Korea's banking sector has been relatively stable, but competition for deposits has intensified as interest rates have risen. The Bank of Korea held its benchmark rate at 3.50% through much of 2024, keeping funding costs elevated for lenders. A stablecoin-linked deposit channel could add another layer of competition, especially if larger banks with stronger deposit franchises attract more inflows.
What It Means for Investors
For everyday investors, the key takeaway is that South Korea's stablecoin policy is not just a crypto story—it is a banking story. If banks become the primary issuers, stablecoins could become another tool for institutional payments and settlement, but they could also amplify deposit competition. Investors in South Korean bank stocks should watch how regulators design the reserve requirements and whether they include deposit insurance or other safeguards to prevent runs.
The broader market context matters too. South Korean chip stocks have surged recently on AI-driven demand, as seen in the rally following Micron's $22 billion AI signal that lifted Samsung and SK Hynix. That tech-led optimism has supported the Kospi index, but banking sector dynamics could introduce a different set of risks. If deposit competition widens profitability gaps, weaker lenders may face pressure on their net interest margins, while stronger banks could benefit from lower funding costs.
Globally, stablecoin regulation is still evolving. The US is debating the Lummis-Gillibrand Responsible Financial Innovation Act, while the EU's MiCA framework is set to take full effect in 2025. South Korea's bank-first approach could serve as a test case for other jurisdictions weighing similar moves. For now, S&P's analysis suggests that the path to stablecoin adoption is not just about technology—it is about where the money sits and how fast it can move.
