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The stablecoin market is grappling with two significant challenges: the decoupling from their pegged value (depegging) and their alleged misuse for money laundering activities. On October 20, South Korea's National Assembly’s Political Affairs Committee is expected to spotlight the institutionalization and oversight gaps surrounding stablecoins during its annual audit.

## Cambodia Abduction Case Sparks Concerns Over Stablecoin Misuse

On October 19, the National Assembly revealed plans to question the Financial Services Commission (FSC) regarding the supervisory framework for Korean won stablecoins and related legislative tasks. However, recent developments, including a series of abduction and disappearance cases in Cambodia linked to the misuse of digital assets for money laundering, have added layers to the discussion.

Reports indicate that international criminal organizations demanded that victims' families transfer digital assets directly or utilized local intermediaries for exchanges and transactions. Notably, romance scam groups in Cambodia were allegedly converting stolen funds into stablecoins, deducting a 10% commission, and then transferring the funds abroad with the help of South Korean organized crime groups.

Attorney Hong Pooreun from Descent Law Firm highlighted, “Under Article 2 of the Criminal Act's territorial principle, foreigners committing crimes in Korea may be prosecuted.” She added, “Additionally, Article 7 allows for the prosecution of foreign nationals committing crimes against Korean citizens.”

## Persistent Regulatory Gap Calls for Legislative Overhaul of Stablecoins

Experts underscore the difficulty in monitoring fund flows of stablecoins in real time due to their inherent structural characteristics. A report by the Korea Capital Market Institute noted that peer-to-peer (P2P) stablecoin transactions are nearly untraceable and their anonymity and decentralized nature make them highly susceptible to criminal exploitation, tax evasion, and illicit remittances.

The report recommended overhauling the anti-money laundering (AML) system and foreign exchange transaction regulations to mitigate these risks. To avoid inefficiencies from overlapping regulations, it suggested incorporating stablecoins under the purview of the Act on Reporting and Using Specified Financial Transaction Information (Specific Financial Information Act) and the Foreign Exchange Transactions Act. This would enhance Know-Your-Customer (KYC) procedures and transaction reporting obligations.

Attorney Hong pointed out that when victims' funds are passed through intermediary accounts and converted into cryptocurrencies, financial institutions face challenges in detecting money laundering immediately. She emphasized, “Legislative amendments are needed to allow financial institutions to preemptively freeze accounts that receive high-volume deposits within short periods, irrespective of whether a suspicious activity report is filed.”

## Depegging Incidents Shake Market Trust, Highlighting the Need for Redemption Mechanisms

The stablecoin market has also witnessed significant volatility, with forced liquidations exceeding approximately KRW 27 trillion. Stablecoins, traditionally perceived as safe assets, have suffered a series of depegging events, eroding investor confidence.

For instance, Tether(USDT) prices on Bithumb surged to KRW 5,755—3.5 times its $1 pegged value. Similar price anomalies occurred for USD1 and USDe on Upbit and Binance, respectively. Both Bithumb and Binance have since initiated compensation procedures for affected users.

In response, the Korea Deposit Insurance Corporation recommended adopting mechanisms akin to the European Union’s Markets in Crypto-Assets (MiCA) regulation and the United States' GENIUS Act. These legislative frameworks enable all stablecoin holders to directly request redemptions from issuers, ensuring greater investor protection.

As stablecoins face increased scrutiny from regulators and financial institutions globally, calls for comprehensive oversight and clear policy measures are intensifying. The upcoming discussions in the South Korean National Assembly may serve as a pivotal moment to address these growing concerns.