[Token Securities Are Coming]② An Uncharted Path... Investor Protection Is Key

Speculation Could Worsen Market Conditions
Clear Separation of Token Securities and Virtual Assets Needed

As the token securities system begins to take shape, voices of concern are gradually emerging. There are many worries that if regulations are excessively loosened, the market could suffer from speculative fever.

Experts emphasize that once the era of token securities fully opens, tokenization of non-prime assets may occur, making investor protection all the more important. Kim Gap-rae, Senior Researcher at the Korea Capital Market Institute, said, "For example, if a building located in Gangnam is divided into fractional investments and token securities are traded at 5,000 won, it may appear that the Gangnam building is cheap, but ordinary investors might not know whether it is actually worth 50,000 won or 500 won." He added, "Regarding such matters, it is necessary for businesses to bear appropriate obligations such as providing explanations to investors." He continued, "Investors may be lured only by the notion of cheapness, which could lead to speculative phenomena."

Kim also explained, "The token securities market using blockchain is something we have not experienced before. In the U.S., token securities issuance (STO) was conducted on a public blockchain rather than a permissioned blockchain, but market activation has been slow. It is desirable for the market to grow based on trust after confirming the stability of products and trading systems." Furthermore, he said, "The meaning of decentralization is that there is no one responsible compared to a centralized market. Therefore, systemic verification is necessary, and starting with a permissioned blockchain and allowing a public blockchain only if there are no issues would be appropriate."

Kim So-young, Vice Chairperson of the Financial Services Commission, expressed a similar view. At the 6th public-party-government meeting hosted by the People Power Party’s Digital Asset Special Committee on the 6th, titled 'Financial Innovation Led by Blockchain, STO Empowering the Capital Market,' Kim said, "There may be various concerns and opinions based on interests during the uncharted process of institutionalizing token securities." She added, "Since atypical rights are issued as securities and circulated in various over-the-counter markets, the possibility of rampant speculation cannot be excluded." She emphasized, "There are voices calling for significant deregulation, but we must also be cautious of regulatory arbitrage arising simply because tokens take the form of securities and the market growing abnormally."

Urgency of Establishing a Basic Digital Asset Act

Furthermore, it is suggested that enacting a Basic Digital Asset Act to clearly separate the token securities market from virtual assets is a measure to protect investors. Ryu Hyuk-seon, Professor of Management Engineering at KAIST, said, "Tokens with securities characteristics are regulated under the Capital Markets Act, but for digital assets excluding these, there is no protective mechanism for investors due to the absence of a basic law." He added, "Once the Basic Digital Asset Act is established, there will be no reason to forcibly absorb virtual assets into the Capital Markets Act, and assets traded in the coin market will no longer suddenly be exempt from regulation based on securities classification." He continued, "There may be digital assets whose securities status is ambiguous, and currently they are classified as securities to protect investors. With the Basic Act in place, token securities and digital assets can coexist under legal certainty." He emphasized, "With the Basic Digital Asset Act, acts of converting securities into coins for trading can be completely blocked."

The Digital Asset Exchange Joint Council (DAXA), which includes domestic virtual asset exchanges Upbit, Bithumb, Coinone, Korbit, and Gopax, stated that no security tokens have been listed on their member exchanges so far. A DAXA official said, "When reviewing support for trading, we have been verifying whether the asset has securities characteristics."

However, while token securities are regulated under the Capital Markets Act, virtual assets currently lack a governing basic law. Due to this legal gap, there is a possibility that assets with securities characteristics are issued as coins to evade regulation. It has also been pointed out that if coins already listed and traded on exchanges are subjected to securities classification, uncertainty will increase and investor protection in virtual assets could be compromised.

Nonetheless, it is uncertain whether the Basic Digital Asset Act will be enacted soon. The National Assembly’s Political Affairs Committee has delayed the passage of virtual asset-related bills since November last year. An industry insider said, "The enactment of the Basic Digital Asset Act is currently a lower priority," adding, "With the general election scheduled for next year, the legislative gap may be prolonged."