"To Prevent Luna Incident, Listing Arbitrage-Type Coins Must Be Banned" ... Calls for Strengthened Disclosure and Regulation

Yoon Chang-hyun, Chairman of the Special Committee on Virtual Assets of the People Power Party, is presiding over the emergency seminar "Luna·Terra Incident, Causes and Countermeasures" held at the National Assembly Members' Office Building on the 23rd. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Lee Jung-yoon] To prevent a recurrence of the collapse of the cryptocurrencies Luna and TerraUSD (UST), there is a call to ban the listing of arbitrage-type stablecoins on cryptocurrency exchanges.

At the seminar titled "Luna and Terra Incident: Causes and Countermeasures," jointly hosted on the 23rd by the People Power Party Policy Committee and the Special Committee on Virtual Assets, Professor Hwang Seok-jin of Dongguk University Graduate School of International Information Security stated, "Luna and Terra are coins created without collateral, based on arbitrage and market incentive strategies, primarily designed to generate profits through arbitrage trading," adding, "The value of virtual assets is guaranteed not by collateral that ensures safety but solely by investor trust, which increases risk according to financial market volatility and can lead to structural vulnerabilities."

Professor Hwang continued, "Given this, arbitrage-type stablecoins, which are more exposed to external financial environments than the positive functions of virtual assets, should not be allowed to be traded on domestic virtual asset exchanges."

Previously, when the price of UST, a stablecoin designed to be pegged to 1 dollar, plummeted, the price of its sister coin Luna also fell, causing a major crash. Unlike other stablecoins backed by safe assets such as cash or government bonds, UST applied an algorithm that maintained its value through Luna. When UST's price rose above 1 dollar, investors would sell it, eventually bringing the price back to 1 dollar. Conversely, if it fell below 1 dollar, it could be exchanged for Luna, which holds a value of 1 dollar, increasing demand for UST and pushing the price back up. However, due to concerns about economic recession, the prices of Luna and UST dropped, ultimately resulting in a major crash.

Professor Hwang also called for the establishment of transparent listing and delisting systems for cryptocurrencies. He said, "Most exchanges decide to delist coins citing 'failure to meet internal standards' and notify investors, but the internal standards related to listing and delisting are not accurately disclosed or publicly announced."

He added, "Exchanges should establish transparent procedures for listing reviews and disclose clear grounds and reasons when listing or delisting coins. If problems arise with coins listed without transparent procedures, exchanges should bear civil and criminal liabilities."

He also emphasized the need to establish a dedicated organization for cryptocurrencies. "Rather than holding ad hoc meetings whenever specific issues arise, it is necessary to establish a dedicated organization to prevent such incidents and respond proactively," he said. "A dedicated organization is needed as a control tower for investor protection policies and the entire digital asset industry, and it should be concretized by establishing it under the president as a Digital Asset Committee or Digital Asset Supervisory Agency."

On the same day, Kim Gap-rae, a research fellow at the Korea Capital Market Institute, argued for strict listing reviews and disclosure regulations. Kim explained, "The European Union's (EU) proposed regulation on virtual assets (MiCA) categorizes stablecoins into asset-referenced tokens and electronic money tokens, granting issuance qualifications and operational guidelines according to their characteristics, thereby managing them systematically," adding, "The EU is negative about recognizing algorithmic stablecoins as asset-referenced tokens with legal status." Kim recently submitted a research report analyzing the virtual asset industry bill proposed in the National Assembly to the Financial Services Commission.

Professor Jeon In-tae of the Department of Mathematics at Catholic University, who also presented, said, "In the case of the Korea Exchange, it is supervised by the Financial Supervisory Service, audited by nationally certified public accountants, and has credit rating information provided by systematized corporate evaluation companies, but these aspects are insufficient in the virtual asset market," explaining, "It is necessary to establish multiple certified virtual asset evaluation companies and require exchanges to obtain evaluations from two to three such companies for listing and disclosure of virtual assets."

There was also a question about implementing short-term cryptocurrency regulations through measures such as the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information. In response, Park Ju-young, Director of Financial Innovation at the Financial Services Commission, said, "We need to consult with the Financial Intelligence Unit (FIU), but the Act on Reporting and Using Specified Financial Transaction Information itself includes restrictions related to money laundering."

Criticism of the previous government was also voiced. Yoon Chang-hyun, chairman of the People Power Party's Special Committee on Virtual Assets, said, "The Moon Jae-in administration's officials maintained social distancing, which led to chaos," adding, "The market outside the regulatory framework has grown too large, and there are many challenges to bringing it within the system." He emphasized, "We will strive to improve deficient systems such as market surveillance and investor protection to prevent a second Luna incident."