South Korea prepares for more digital wallets thanks to won-backed stablecoins

As South Korea’s quest to legalize won-denominated stablecoins enters its final stages, the market is preparing new digital wallets that can support stablecoin payments. At the same time, some financial experts are questioning whether digital identity verification will be able to follow the predicted expansion in stablecoin trade.

The country’s new umbrella law for governing digital assets, the Digital Asset Basic Act of Korea (DABA), is due to be published before March this year. The law will complement the Korean Virtual Asset User Protection Act (VAUPA) by expanding protections to stablecoins, NFTs and certain tokenized assets.

The regulation defines which Korean companies can issue stablecoins pegged to the Korean won. It also adds new obligations for stablecoin issuers and other digital asset businesses to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) obligations.

The full details related to the implementation of the Act are still unknown, but the market is preparing for a surge in digital wallets which can handle stablecoin payments.

Shinhan Financial is testing proof of concept integration through the food delivery platform Danggeoyo, while Woori Financial is working towards won-pegged stablecoin transactions through the Samsung Wallet.

Leading South Korean fintech platforms, such as Naver Pay, Kakao Pay and Toss, are also reportedly working to establish stablecoin payment infrastructure, according to Chosun Daily.

The increase in stablecoin payment, however, could bring more operational burdens related to identity and ownership regulation, tracking transactions and complying with regulation in other jurisdictions, Asia Business Daily reports.

“If the number of wallets explodes without proper identity verification, it may become difficult not only to verify and track who is who but also to determine who is responsible,” an unnamed bank official told the news outlet.

The country is also moving towards regulating the trade of other types of assets online. Last month, it established the legal groundwork for security token offerings (STOs), opening the door for purchasing and over-the-counter (OTC) trade of tokenized real-world assets.

STO trade allows investors to buy a fraction of an asset such as real estate or an artwork, while at the same time introducing a new way for small companies and venture firms to raise funds. It could also lead to expanded need for digital identity verification.

Korea’s DABA arrives just as the U.S. prepares to introduce a legal framework for dollar-backed stablecoins called the GENIUS Act. The regulation includes imposing stricter identity verification obligations on stablecoin issuers than before.

Compared to countries like Korea, which completed a nation-wide digital ID rollout last year, the U.S. is lagging behind in state-backed digital identity verification options.

Article Topics

AML  |  cryptocurrency  |  digital ID  |  digital wallets  |  identity verification  |  regulation  |  South Korea