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South Korea Passes New Crypto Bill as Asia Forges Ahead

3 mins
Updated by Geraint Price
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In Brief

  • South Korea's Parliament passes Virtual Asset User Protection bill to prevent crises like Terra Luna collapse.
  • The new law requires digital asset companies to insure customer funds and maintain a certain amount of reserve capital.
  • South Korea's bid for Terra co-founder Do Kwon's extradition over fraud charges puts it in competition with the US.
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South Korea’s Parliament has passed a new Virtual Asset User Protection bill to codify rules that could have prevented the Terra Luna collapse.

The new legislation is geared towards protecting investors and addresses market manipulation and unfair trading practices.

South Korea’ New Bill Regulates Exchanges to Protect Investors

The much-needed legislation brings crypto under the jurisdiction of the Financial Services Commission, which will supervise crypto service providers. These include exchanges and custodians.

Under the new law, digital asset companies must insure customer funds, hold a certain percentage of reserve capital, and keep necessary records.

South Korean platforms Haru and client Delio paused withdrawals in June after one of Haru’s service providers violated their agreement. Later, Haru fired 100 employees to reduce risk as clients unable to withdraw funds instituted legal action.

Biggest exchanges in South Korea will have to comply with new Virtual Asset User Protection bill to prevent a disaster proportional to Terra Luna collapse.
Leading Crypto Exchanges in South Korea as of March 2023 | Source: Statista

The country’s National Policy Committee Chair, Back Hye-ryun, said South Korea’s new crypto bill would first focus on investor protection. Existing capital markets laws will still govern securities, while the new bill will cover Bitcoin and other assets.

Critically, the new bill means South Korea is firmly positioned to compete with its Asian rival Hong Kong in attracting crypto investors. While strict, Hong Kong’s new digital asset laws provide companies with a solid base for operating in the region.

Earlier this year, Gemini co-founder Cameron Winklevoss predicted that Asia would spur the next bull market.

Do Kwon’s Extradition Still up for Grabs

South Korean prosecutors believe Terra’s co-founder Do Kwon defrauded investors and want him extradited from Montenegro. Kwon created and touted the TerraUSD stablecoin and its sister token LUNA as the holy grail of financial independence.

TerraUSD stayed at $1 through an algorithm that Kwon developed to mint and burn LUNA depending on whether Terra was above or below $1.

Get the lowdown here on what a stablecoin is.

Meanwhile, Kwon is currently serving a four-month sentence in the Balkan nation for passport fraud.

South Korea’s bid for Kwon’s extradition competes with the US, where the Securities and Exchange Commission (SEC) has leveled eight fraud charges. Montenegrin authorities said it is not a foregone conclusion which country’s extradition request the nation will honor.

The decision will be based on the seriousness of each country’s charges against Kwon, among other things. Kwon’s lawyers previously said the SEC has no authority to bring charges against the Terra founder.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...