Download App
iOS & Android

South Korean Lawmakers Are Gearing Up to Regulate Crypto. What Could That Look Like?

In South Korea’s capital city of Seoul, the 300 members of the country’s National Assembly are currently debating 17 separate crypto-related proposals – ranging from implementing reserve requirements at exchanges to ensuring fair trading – aimed at creating better protections for Korean crypto investors.

The culmination of this debate will be the Digital Asset Basic Act (DABA), a comprehensive legal framework that will provide regulatory guidelines for the growing Korean crypto industry.

Korean media first reported that lawmakers were working on DABA in June – one month after the swift collapse of the Korean algorithmic stablecoin issuer Terra wiped approximately $60 billion from the global crypto ecosystem.

The implosion of the once-mighty Terra was the first domino to fall in an ensuing series of other high-profile crypto collapses, including the failure of hedge fund Three Arrows Capital and a string of bankrupted exchanges and lenders including Celsius Network, Voyager Digital, Genesis and FTX.

As yet more dominoes begin to wobble, regulators around the world have urgently called for comprehensive crypto regulations to be put in place to protect investors. The European Union’s landmark Markets in Crypto Assets (MiCA) regulation is set for a vote in April, lawmakers in the U.S. are weighing several proposed bills that seek to regulate the domestic industry and South Korean lawmakers have said that DABA could be ready as early as June.

Necessary global cooperation

However, regulating crypto country by country isn’t going to be enough to prevent the next FTX from happening.

As European Commissioner Mairead McGuiness recently pointed out in an interview with CoinDesk, individual jurisdictions’ attempts to regulate crypto are useless without global coordination.

“There’s no point in Europe being on its own,” McGuiness said. “This is a global development and we can’t put barriers on it.”

McGuinness is not alone in her opinion. In November, India Finance Minister Nirmala Sitharaman said, "No one single country can succeed individually, being in a silo, trying to regulate the crypto assets.”

As president of this year’s Group of 20 nations, India has announced that how to regulate crypto will be a priority agenda item. Indeed, regulators and politicians around the world, including in the U.S., have called for international cooperation to eliminate opportunities for regulatory arbitrage and effectively regulate crypto.

South Korean lawmakers have heeded the call for international cooperation and coordination, telling local media last year they would only begin working on DABA “in earnest” in October 2022, after the reports ordered by U.S. President Joe Biden in his executive order on crypto (issued in March) was published.

In a translated draft of one of the 17 crypto-related proposals currently being considered by Korea’s National Assembly, Rep. Yoon Chang-Hyun states:

“Despite the rapid growth of the digital asset market and the increase in the number of users, legislation is being delayed in consideration of global consistency.”

Yoon, who is a member of the ruling People Power Party (PPP), has been outspoken about the need to investigate the Terra collapse and provide the Financial Services Commission (FSC) – the country’s top financial regulator – with more power to oversee the crypto industry.

However, Yoon and his fellow regulators have stressed that while the country is keeping an eye on international regulations, they’re not just waiting around for regulation to be decided. Instead, international standards will be considered and then gradually folded in where South Korean regulators see fit.

“Rather than blindly waiting for international discussion trends and preparation of global standards, it is necessary to first prepare a regulatory system for user protection through minimum necessary regulations,” Yoon’s proposal reads. “It is a situation where it is judged that it is appropriate to promote gradual and step-by-step legislation to supplement this in the future.”

Bipartisan agreement

The necessity of protection of crypto investors is one of the only issues that both the ruling People Power Party and opposing party agree on, said Thomas Cheong, CEO of blockchain platform EQBR Networks, a subsidiary of South Korea-based EQBR Holdings.

Current President Yoon Suk-yeol campaigned on promises to deregulate the crypto industry – a promise that was made much more difficult in the wake of Terra’s stunning collapse, which has sparked a slew of regulatory actions, lawsuits and investigations both in South Korea and elsewhere.

One promise on which President Yoon has been able to deliver, however, is the legalization of securities tokens, which are blockchain-based digital forms of traditional securities. On Jan. 19, FSC Chairman Kim Joo-Hyun announced that security token offerings (STO) had officially been legalized in South Korea.

“STOs were not allowed under the legal system, but considering the digital paradigm shift and demand of the times we will permit the issuance of securities tokens and build a safe distribution system,” The Korea Herald quoted Kim as saying.

Non-security tokens – which include cryptocurrencies like bitcoin and ether – are currently regulated under narrow Korean anti-money laundering regulations and Korean securities regulations, both of which are enforced by the FSC. Under the existing regulations, all but five Korean exchanges have been wiped out of the market.

The FSC acknowledged that regulations for non-securities tokens are shifting, telling CoinDesk in an email that “the government is providing active support for ongoing discussions [on digital assets regulation] taking place at the National Assembly.”

That shift could come sooner than expected, according to industry insiders like Cheong.

“The law will likely pass within this year,” Cheong said. “Both the Korean ruling party and opposing party agree on the necessity of protection of crypto-investors.”

Crypto-friendly culture

Part of that speed is due to the Korean government’s embrace of technology, which turned the once-poor country into an economic powerhouse in a matter of decades.

Under the government’s “Digital New Deal” – a nationwide initiative aimed at helping the country’s tech industry expand, which started under Korea’s previous president, Moon Jae-In – the Korean government plans to pour $8.7 billion into a variety of tech initiatives, from artificial intelligence (AI) to 6G to the metaverse. Through the initiative the Korean government hopes to create 2 million new jobs.

Nearly $200 million of the funds pledged to the Digital New Deal will go towards building out the country’s domestic metaverse ecosystem. When President Yoon entered into office, he announced 110 “national tasks” – 10 of which are related to the metaverse.

Industry insiders told CoinDesk the Korean government is looking for a way to encourage the growth of the crypto industry, which it believes could lead to an economic boom for the country, while also protecting investors.

However, that’s easier said than done – and insiders also said that Korean lawmakers are nervous about making regulatory decisions that could backfire and lead their constituents to blame them for any ill-effects.

Kent Kim, founder of 3D metaverse platform Deother, told CoinDesk Korean lawmakers are skittish when it comes to regulating crypto.

“They’re old, they don’t want to study new things,” Kim said. “I talked to the public politicians in Korea … new things scared them to death.”

Chaebol supremacy

While the South Korean government has taken a tough stance on cryptocurrencies in the name of consumer protection, industry insiders like Kent Kim feel that it’s unfair and “biased” that lawmakers openly embrace NFTs and the metaverse.

“Politicians don’t really care about the blockchain, and they don’t know much about NFTs or metaverse either. They are just populists,” Kim said. “They select purposefully, the topics that are very hot and safe and technology-driven.”

Both President Yoon Seok-youl and the Democratic Party candidate Lee Jae-myung used NFTs as a part of their presidential campaigns to raise donations with young and crypto-savvy voters in early 2022.

Kim told CoinDesk the South Korean government won’t stand against Samsung – which accounts for a whopping 20% of South Korea’s gross domestic product (GDP) and holds serious political sway – or other chaebols for selling NFTs; instead, it embraces them.

“If you talk about a coin in Korea, people instantly [see] you as a scammer,” Kim told CoinDesk. “But, the funny thing is, when Samsung came out with a TV that you can sell your NFTs on, the government cannot attack Samsung.”

“The government will look at it and say ‘I’m going to use that, too’,” Kim added.


All Comments

Recommended for you

  • Bitcoin Layer 2 project MAP Protocol has received strategic investment from waterdripfund

    Bitcoin Layer2MAP protocol announced receiving strategic investment from waterdripfund. MAP protocol was established in 2019 and is a Bitcoin Layer-2 protocol for peer-to-peer cross-chain interoperability. By utilizing Bitcoin's security mechanism, MAP protocol not only enhances network security, but also achieves BRC20 cross-chain capability, allowing assets and users from other public chains to seamlessly interact with the Bitcoin network.

  • US Lawmakers Slam SEC for Deliberately Obfuscating Cryptocurrency Regulations

    A US legislator has criticized the Securities and Exchange Commission (SEC) for its intentional policy preference to reduce market transparency. The legislator posted on social media platform X, stating that it is now obvious that the SEC's policy preference is to provide less clarity to the market, rather than more. This is a complete detriment to our great capital markets.

  • ARK Invest sold approximately $24.29 million in Coinbase shares again yesterday

    On December 7th, according to Ark Invest Daily, Cathie Wood's ARK Invest sold 180,422 shares of Coinbase stock through three funds on December 6th, worth approximately $24.29 million.

  • About 72% of Ethereum block builders are “reviewing” transactions sanctioned by OFAC

    According to research by Toni Wahrstätter, a researcher at the Ethereum Foundation, about 72% of the data blocks released on MEV-Boost are now considered "censored," higher than the approximately 25% in November 2022. This metric measures the blocks assembled by MEV-Boost block builders, and according to statistical analysis, these builders seem to deliberately exclude encrypted addresses subject to US OFAC sanctions.Wahrstätter explained: "Block builders have the right to decide which transactions (and in what order) to include in their blocks, and which transactions they want to review. This means that block builders can decide the content of the blockchain."

  • Hong Kong Police: The HOUNAX investment fraud case currently involves approximately NT$159 million

    Hong Kong police stated that as of 4:00 pm the day before yesterday, a total of 164 victims had reported the HOUNAX investment fraud case involving approximately RMB 159 million on the virtual asset trading platform.

  • Multiple whales/institutions sold a total of 16.85 million BLUR

    According to data monitored by Lookonchain, the price of BLUR fell by about 8% today. It is noteworthy that many whales/institutions are selling BLUR, with a total of 16.85 million coins (8.43 million US dollars) sold.

  • Beosin Trace: TIME token was attacked, hackers made about $188,000

    Beosin EagleEye security risk monitoring, warning and blocking platform under Beosin detected an attack on the TIME token, with hackers profiting about $188,000. Beosin security team analyzed that the hacker exploited a contract vulnerability to destroy the TIME token in the TIME-ETH trading pair, thereby profiting. The reason for this is that the _msgSender() of the TIME token returns not msg.sender, but is selected based on the caller. If the caller is the Forwarder contract, then the specified address of the caller is returned. At the same time, the Forwarder contract has arbitrary external call function, and the attacker calls the TIME contract's burn function through the Forwarder contract, passing in the pair address, and finally destroying the TIME token in the pair.

  • US presidential candidate Vivek Ramaswamy: Encryption regulations need to keep up with the current situation, the current framework is not working

    In the Republican presidential debate held in Tuscaloosa, Alabama on Wednesday night, when presidential candidate Vivek Ramaswamy was asked about his cryptocurrency policy, he said: "Scammers, criminals and terrorists have been deceiving people for a long time, and our regulations need to keep up with the current situation. In fact, what SBF has done on FTX shows that the current framework is not working."

  • Hong Kong Securities and Futures Commission: It will formulate risk assessment criteria for virtual asset cases with the police and conduct weekly information exchanges

    According to Zheng Dejia, Director of the Regulatory and Enforcement Division of the Hong Kong Securities and Futures Commission, the Commission and the Police have established a working group on virtual asset trading platforms, which has held four meetings in October and November to exchange information on cases and investigations related to virtual platforms at least twice a week. The two sides will formulate guidelines, conduct risk assessments on individual cases, and decide whether to further investigate or enforce. If the Securities and Futures Commission discovers particularly suspicious cases that require rapid enforcement or related actions, it will promptly contact the police to ensure effective coordination between the two sides during the investigation and enforcement period. Zheng added that during the weekly information exchange period, if the Securities and Futures Commission discovers particularly suspicious cases that require rapid enforcement or related actions, it will promptly contact the police to ensure effective coordination between the two sides during the investigation and enforcement period. Regarding the number of victims and amounts involved in the HongKongDAO and BitCuped fraud cases, the Securities and Futures Commission pointed out that the cases are still under investigation and there is no relevant information yet. If other suspicious platforms are discovered in the future and it is deemed necessary to disclose, the Commission will disclose the information as soon as possible. (Hong Kong Economic Times) Yesterday, the Hong Kong Securities and Futures Commission stated that HongKongDAO and BitCuped are suspected of virtual asset fraud.

  • State Council: Support in Beijing’s exploration of the application of digital renminbi in tax collection and other public utility fields

    State Council has approved the "Work Plan for Supporting the Construction of the Comprehensive Demonstration Zone for Deepening the National Service Industry and Expanding Opening-up in Beijing". The plan states that support will be given to exploring the application of digital RMB in public services such as tax and fee collection in Beijing, and supporting Beijing in strengthening cooperation and exchanges with members of the Digital Economy Partnership Agreement (DEPA) in areas such as digital identity, digital inclusiveness, network security, financial technology, and logistics.