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.
Read more: As part of CoinDesk’s Policy Week, reporters covered the regulatory outlook in the biggest financial centers of Asia, including Hong Kong, India, Singapore and Japan.
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.
Read more: The Fall of Terra: A Timeline of the Meteoric Rise and Crash of UST and Luna
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.”
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.”
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.
Read more: Why Is South Korea Throwing Money at 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.”
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.