Regulation or Not: Korea’s Crypto Exchanges Pledge Market Cleanup

“It was a fantastic year in 2017.”

As stated by Junhaeng Lee, co-founder and CEO of Seoul-based crypto platform Gopax, that’s one simple but accurate summary of the last year for cryptocurrency exchanges in South Korea. Indeed, since earlier last year, crypto trading volume in the country has surged to a point where exchanges from South Korea have topped their global peers in terms of 24-hour trading volume.

Speaking at the Deconomy conference in Seoul on Tuesday, Lee credited the speculative mindset of Korean investors as the key driver. As he put it, when price surged, investors simply flocked in, enticed by big gains.cl

“South Korea market is very, very speculative,” he told CoinDesk.

Yet, that boom has proved transient.

Amid tighter regulatory measures on initial coin offerings (ICOs) and increased scrutiny from financial watchdogs, the domestic cryptocurrency market has seen what appears to be its largest-ever correction. While the total capitalization of all cryptos have seen its all-time high at a whopping $800 billion near the end of last year, it plunged to just below $300 billion within three months in 2018.

Still at this week’s event, one of the largest yet held in the country, those assembled sought to argue that the development was best seen as a “healthy correction,” with representatives from Korean exchanges – including Gopax, Coinone and Korbit – showing optimism during onstage sessions that saw them discuss how to ensure a healthier market.

However, most notably, each exchange said that it will take steps to better their efforts in standardizing practices.

Korbit CEO Tony Lyu told the audience:

“We need to create a healthy market first. If exchanges can’t do that on our own, we will have to turn to the government.”

ICO ban

Still, there was also a willingness by those onstage to support some of the more highly criticized practices in the industry, including the issuing of custom cryptocurrencies by startups for fundraising.

As reported by CoinDesk, South Korea’s regulator Financial Services Commission issued a guideline on Sept. 29 last year to prohibit all forms of ICO domestically. Yet, fundraisers from both Korea and abroad appear not to be not deterred in soliciting Korean investors.

“Many ICOs are still looking for interests in South Korea – with operators from the country but registration in overseas – and wishing to list their tokens in Korean exchanges,” Gopax’s Lee remarked.

Adding to a broader dynamics, Myunghun Cha, CEO of Coinone, said during the panel that the firm has come frequently across requests where projects pitched in with payment offer for the exchange to list their tokens.

In light of that, exchange operators in the country are doubling down on their efforts in reining this speculation drive through more robust vetting methods.

In explaining that, Lee said his firm has established a token review committee with lawyers to have project teams come to its office to verify their technological background and whether the platform design is even feasible.

“There are just too many projects every day and we have to be more conservative on ICOs as investors cannot have enough information so we need to do a lot of filtering for them,” Cha said.

Echoing that, Lyu voiced an even higher level of concern moving forward on listing tokens from ICOs, which will largely be in line with the exchange’s existing offering that limits to trading pairs to more mainstream cryptos such as bitcoin, ether and ripple.

KYC Mandate

Aside from a more robust vetting system to screen tokens or a more conservative strategy, Korbit refrains from listing ICO tokens, the mandate of know-your-customer verification process is another area that exchanges will see further self-compliance with the regulator.

As reported before, starting from February this year, the FSC has formally banned domestic banks in South Korea from offering virtual accounts for exchanges in a bid to mandate stricter user ID verification process.

In speaking to CoinDesk, Cha said so far Coinone has seen a roughly 20 to 30 percent of its users that have completed the mandate since the exchange currently can only proceed with one bank in South Korea.

Meanwhile, the Shinhan bank-invested Gopax told CoinDesk it has had all users on the platform to complete the process in bid to fully comply with the regulation imposed by the FSC.

To that effort, Lyu from Korbit argues that a better collaboration with financial institutions is imperative, otherwise the industry may see further government weighing-in.

Panel image via CoinDesk