South Korea’s FSC plans to prohibit interest payments on stablecoins, aiming to protect financial stability while fostering innovation in digital assets, with a new crypto law expected by the end of 2025.
Summary
- South Korea will prohibit stablecoin holders from earning yield, following global trends like the U.S. GENIUS Act.
- Banks will lead stablecoin issuance, with fintech firms acting as technical partners. Crypto exchanges will be barred from issuing their own stablecoins.
- A “phase 2 cryptocurrency law” is expected by the end of 2025, with follow-up regulations to ensure safe, efficient implementation and support for payments, remittances, and cross-border transactions.
Proposed stablecoin interest ban mirrors U.S. regulations
Financial Services Commission Chairman Lee Eok-Won announced the policy on October 20 during a parliamentary audit at the National Assembly’s Financial Committee, as originally reported by Yonhap News. Under the proposed rules, stablecoin holders will no longer be able to earn yield simply by holding the tokens. The policy aims to maintain financial stability while allowing innovation in digital assets.
The move aligns with the U.S. GENIUS Act, which prohibits stablecoin issuers from offering interest or yield to holders. This legislation aims to distinguish payment stablecoins from traditional bank deposits and prevent potential risks associated with yield-bearing digital assets.
However, it’s worth noting that the GENIUS Act has faced criticism for allowing crypto exchanges to offer rewards on stablecoins, potentially circumventing the interest prohibition. This loophole has raised concerns among U.S. banks about the risk of significant deposit outflows, which could destabilize the financial system.
