By Nancy, PANews
South Korea’s unique “Kimchi Premium” gives local cryptocurrency exchanges a strong listing effect. It is not only a “golden ticket” for project parties to gain capital attention and brand exposure, but also an important indicator of investors’ FOMO entry.
Recently, with the Financial Services Commission (FSC) of South Korea announcing a new virtual asset bill plan, including raising the threshold for listing, standardizing trading behaviors, and introducing stablecoin supervision, the South Korean crypto market is accelerating into the institutionalized and standardized 2.0 regulatory era.
New regulations expected to be submitted to Congress for approval by the end of the year: stricter coin listings and the establishment of stablecoin regulation for the first time
As major economies such as the United States, Japan and the European Union accelerate the institutionalization of virtual assets, South Korea is also stepping up efforts to establish a comprehensive regulatory system while maintaining market innovation vitality.
Recently, the FSC announced the "Virtual Asset Phase 2.0 Act" plan, which aims to shift the listing business of virtual asset exchanges from the current self-regulatory model to a more open and strict government direct supervision system to improve transaction transparency and investor protection.
Regarding coin listing regulations, the FSC plans to require exchanges to establish clear listing and delisting standards, trading suspension and resumption rules, and information disclosure requirements to address previous issues of lax listing reviews and the influx of risky assets. In fact, the issue of coin listings was already highlighted at the fourth meeting of the South Korean Virtual Asset Committee this year. At that time, the FSC announced the implementation of new regulations, the "Amendment to the Model Transaction Support Case," effective June 1st. These regulations require newly listed coins to have a minimum circulation volume and restrict market price orders during the initial listing period to prevent "coin pumping" and speculation in zombie and MEME coins.
In terms of legal definitions and business conduct standards, the FSC has renamed "virtual assets" in current legal terminology to "digital assets" and formally incorporated the concept of "distributed ledgers" into the definition, enhancing legal clarity and operability. The bill also further subdivides the business scope of operators into categories such as virtual asset exchanges, traders, and custodians and managers, and adds basic business conduct standards such as prohibitions on insider trading and market manipulation. This refinement helps clarify the legal responsibilities of different types of participants, reduces regulatory gray areas, and effectively deters market manipulation.
Regarding market competition and monopoly issues, the FSC is conducting joint research with the Fair Trade Commission (FTC) on the potential for monopoly issues arising from the high market share of exchanges like Upbit and Bithumb in the Korean won market. This initiative will help maintain the vitality of the Korean market, encourage the development of small and medium-sized exchanges, and increase market choice.
Notably, the FSC also formally introduced its first regulatory framework for stablecoins, ensuring adequate safeguards while supporting the development of financial services such as payments, remittances, and cross-border transactions in the stablecoin market. According to the plan, the FSC plans to introduce a licensing system for stablecoin issuers, requiring issuers to hold at least 100% of their reserves in highly liquid assets such as deposits and government bonds, and to establish a mechanism to protect user redemption rights.
South Korea also prohibits interest payments on payment-based stablecoins for holding or using them. The country will explore a bank-led consortium model, restrict fintech companies to technology partnerships, and prohibit virtual asset exchanges from independently issuing stablecoins. The regulatory design will draw on the institutional experience of overseas stablecoins such as Tether and Circle (USDC).
"We will formulate the second phase of the bill through consultation with relevant institutions and discussions with the Virtual Asset Committee, and actively support the parliamentary review. We are still in the early stages of system design, so sufficient safety devices must be in place. Relevant departments are conducting detailed consultations and have entered the final coordination stage, and are expected to complete the submission before the end of the year." said FSC Chairman Li Yiyuan.
South Korea's "ant army" flocks to the crypto market, and regulation moves towards the 2.0 era
South Korean retail investors are known in global financial markets for their willingness to take risks and their pursuit of highly volatile assets, with FOMO (Fear of Motion) deeply embedded in their investment behavior.
According to Yonhap News Agency, as of August this year, more than 10,000 investors held over 1 billion won (approximately $710,000) in virtual assets on South Korea's five major won-denominated exchanges, with a total of 10.86 million active trading accounts, representing approximately 20% of the country's population. This astonishing proportion demonstrates the widespread penetration of crypto investments in South Korean society.
The Korean won has become the second-largest cryptocurrency globally, after the US dollar, and South Korean retail investors are particularly keen on speculating in "smaller currencies." According to a recent Bloomberg report, South Korea's "ant army" (approximately 14 million retail investors), driven by high housing prices and economic anxiety, is frantically pursuing high-risk assets, from leveraged ETFs to cryptocurrencies and even highly volatile altcoins. Margin lending has tripled in the past five years, with massive flows of funds flowing out of bank accounts and into these high-risk markets. The enthusiasm of South Korean retail investors has led to altcoins accounting for over 80% of trading volume on local crypto exchanges, far exceeding the global average (Bitcoin and Ethereum combined typically only account for around 50%).
This phenomenon of widespread investment has not only reshaped South Korea's financial ecosystem but also raised concerns among regulators. In fact, retail investors hold a significant influence on the South Korean stock market, accounting for approximately two-thirds of daily trading volume. Previously, the South Korean government halted a new capital gains tax plan due to strong opposition from retail investors. Now, however, they are flocking to the crypto market, particularly since Trump's election as US president. Trading volume on local crypto exchanges has surged, now accounting for approximately 80% of the country's benchmark Kospi index, with stablecoins also attracting significant interest. At the same time, strict domestic regulations in South Korea have led many investors to shift their trading to overseas markets.
In order to cope with this high-risk market environment, South Korea has been incorporating retail investor enthusiasm into a more robust financial framework through legislation and institutional development in recent years.
As early as September 2021, South Korea officially implemented the "Act on the Utilization and Reporting of Specified Financial Transaction Information" (hereinafter referred to as the "Special Financial Act"), establishing the initial compliance and transparency framework for the virtual asset market. Under this law, virtual asset service providers (VASPs) must register with the Financial Intelligence Unit (FIU) and obtain real-name account and Information Security Management System (ISMS) certifications, just like traditional banks and securities firms, to legally operate. According to recently released data from the FSC, the number of exchanges registered with South Korean authorities has plummeted from 60 to 29 due to significantly increased compliance costs.
In March 2022, South Korea became the first country in the world to formally implement the "Travel Rule," requiring VASPs to collect and store information on both parties in transactions exceeding 1 million won (approximately US$840) to prevent money laundering and illicit capital flows. This marks a shift in South Korean regulation from "entry barriers" to "transaction control."
On July 19, 2024, South Korea implemented the Virtual Asset User Protection Act. This law focuses on protecting user asset security, regulating market trading practices, and strengthening regulatory authority. It specifically combats market manipulation, insider trading, and unfair trading, and explicitly grants financial regulators greater authority to intervene. The bill is also seen as a response to the frequent exchange closures and investor losses in recent years, and it signifies South Korea's gradual development of a healthier, more transparent, and more institutionalized crypto market.
With the arrival of the second phase of the Virtual Asset Bill, South Korea is moving towards more comprehensive and systematic legislation. By clarifying regulations, market blind spots will be eliminated, user protection will be further strengthened, and the predictability of innovation in the crypto industry will be improved.
