Overview of the Virtual Asset User Protection Act
South Korea’s Virtual Asset User Protection Act has led to the closure of several virtual asset exchanges this year, resulting in substantial stranded investments for customers. With up to $12.8 million now available for reclamation, this development highlights the impact of new regulations implemented to safeguard investors.
Exchanges Ceasing Operations
As reported by Rep. Kang Min-kuk of the ruling People Power Party, eleven virtual asset exchanges in Korea have permanently ceased operations, while an additional three have temporarily suspended their services. This significant shift underscores the growing scrutiny faced by the crypto market in South Korea.
Legislative Changes and Investor Protections
Introduced in July 2024, South Korean authorities enacted legislation aimed at regulating the virtual asset landscape to enhance investor protection. The Virtual Asset User Protection Act empowers users with the necessary tools to recover their assets if an exchange becomes insolvent or shuts down.
The Role of the Digital Asset User Protection Foundation
This new law also established the Digital Asset User Protection Foundation, a pivotal entity tasked with managing the recovery of assets during exchange closures or failures. Acting as a custodian, the Foundation streamlines the reclamation process, allowing users to navigate these challenging situations without getting entangled in intricate legal procedures.
Investment Recovery for Crypto Investors
Currently, approximately 33,906 crypto investors are eligible to reclaim their assets from the closed exchanges. According to reports from Korea Times, these exchanges collectively hold around 17.8 billion won (approximately $12.8 million) in total investment assets. This amount includes 1.41 billion won (about $1.02 million) in cashable assets and 16.4 billion won (approximately $11.8 million) in virtual assets.
Distribution of Assets Among Exchanges
Among the closed exchanges, Cashierest topped the list, holding an impressive 13 billion won (around $9.4 million) in customer assets. Following Cashierest, ProBit managed 2.25 billion won (approximately $1.63 million), while Huobi had 579 million won (about $420,000). This concentration of assets in a few exchanges raises concerns about the overall market stability.
Challenges for Investors Amidst Suspended Exchanges
Furthermore, around 30.7 billion won (approximately $22.2 million) remains locked in three additional exchanges that have temporarily halted their services. These exchanges include Oasis, which is holding 16.2 billion won (about $11.7 million), Flata Exchange with 14.35 billion won (approximately $10.4 million), and Btrade managing 80 million won (around $58,000). The predicament may exacerbate the difficulties faced by subscribers trying to reclaim their invested funds.
Future of Crypto Exchanges in South Korea
Looking ahead, Rep. Kang anticipates that more exchanges may be compelled to shut down or suspend their operations as the Financial Services Commission (FSC) continues its comprehensive review process. The increasing number of cryptocurrency-related scandals in recent years, including a notable fraud case involving South Korean crypto entrepreneur Do Kwon, has heightened regulatory scrutiny and raised public concerns, prompting calls for stricter oversight of the crypto market.