Cryptocurrencies to be Disclosed Like Stocks… Preventing 'Exit Scams' of Junk Coins

Financial Services Commission, Discussing Phase 2 Legislation… Initiating Stablecoin Institutionalization

'Delisted within 2 Years of Listing' Reaches 386

Preventing Indiscriminate Listings to Protect Investors

Sequential Application to Already Listed Coins

Bitcoin as 'Key Currency' is an Exception

Industry Agrees on Transparency but Warns of Reluctance to List Domestically if Overregulated

In the future, cryptocurrencies listed in Korea will be required to disclose business reports like stocks. This is to prevent the indiscriminate listing of poor-quality cryptocurrencies. Regulations are also expected to be prepared for businesses issuing stablecoins pegged one-to-one with the dollar value.

Coins Must Also Submit Business Reports

The Financial Services Commission held the second virtual asset committee meeting at the Seoul Government Complex on the 15th to discuss the main tasks and future review directions of the phase 2 virtual asset legislation. The main tasks to be included in the phase 2 legislation of the Virtual Asset User Protection Act became a point of contention at the meeting.

It was strongly suggested to manage cryptocurrency listing standards and procedures through financial authority regulations and to introduce a disclosure system equivalent to capital market disclosures. This is due to the judgment that poor-quality cryptocurrencies, such as meme coins (cryptocurrencies inspired by internet and social media images or catchphrases), are causing significant user damage due to price volatility after listing. Currently, cryptocurrency exchanges like Upbit, Bithumb, Coinone, Korbit, and Gopax regulate themselves.

In reality, most cryptocurrencies that have been delisted have not even been listed for two years. This indicates a high number of poor-quality coin listings. According to data received by Lee Heon-seung, a member of the People Power Party, from the Financial Supervisory Service, 517 cryptocurrencies were delisted from 2018 to August last year. Among them, 386 cryptocurrencies (74.7%) had a listing period of less than two years. Suspicious price trends of poor-quality coins are also frequently observed in Korea. For example, at Exchange A, the trading volume of some poor-quality coins explodes at 9 a.m., causing prices to surge and then fall. Despite the absence of favorable news to explain the sudden rise, prices significantly increase at the time when the price fluctuation rate is reset, raising suspicions of artificial price manipulation.

New Listings Likely to Become Difficult

Cryptocurrency issuers that fail to meet future regulatory standards are expected to find it difficult to list their cryptocurrencies domestically. However, assets like Bitcoin, which effectively serve as key currencies in the cryptocurrency market, will be exempt from regulation, and already listed coins are expected to be applied sequentially with a grace period.

The industry agrees on the need to ensure transparency in listing and trading but argues that regulatory consistency with overseas exchanges is lacking. If domestic disclosure regulations are strengthened, new cryptocurrencies that attract investor interest may be reluctant to list on domestic exchanges. In such cases, listings may only occur on overseas exchanges, and domestic investor funds may flow abroad. There is also a rebuttal that strengthening disclosure regulations does not necessarily prevent price manipulation.

Stablecoins Also to Be Institutionalized

The virtual asset committee decided to separately prepare regulations for stablecoins. It plans to impose strict management obligations on the reserve assets of domestic stablecoin issuers to ensure the reliability of stablecoins. For example, Singapore requires stablecoin issuers to hold at least 100% of reserve assets. Explicitly guaranteeing the redemption rights of stablecoin users is also a strong possibility.

The Financial Services Commission plans to prepare the phase 2 legislative proposal in the second half of this year after discussions by the virtual asset committee. Kim So-young, Vice Chairman of the Financial Services Commission, stated, "A comprehensive and systematic approach encompassing businesses, markets, and users is necessary," and "We will proceed with follow-up procedures as soon as possible."

Choi Han-jong/Cho Mi-hyun, Hankyung onebell@hankyung.com