[Reporter’s Notebook] The First Phase of the Virtual Asset Basic Act Full of Loopholes

"It seems that the framework is starting to take shape and uncertainties are decreasing."

Ahead of the enforcement of the Act on the Protection of Virtual Asset Users and Others on July 19 next year, the Financial Services Commission has announced the draft enforcement decree and supervisory regulations for public comment. As the establishment of the system becomes more visible, the industry is showing a positive response. However, since this is the first phase of legislation, there are still many legal gaps to be filled.

It is encouraging that the profits generated from customer deposits are now required to be given to the customers. Virtual asset service providers operate by separating their own assets from customer deposits. While deposits can be entrusted to banks to generate profits, there were no regulations on how to dispose of these profits. This is why Upbit, which received profits from deposit management from K Bank, did not return them to customers, citing concerns about potential illegal activities such as quasi-deposit-taking.

Entrusting and operating virtual assets to third parties will also become practically impossible. Haru Invest and Delio, virtual asset deposit service providers, suddenly suspended deposits and withdrawals in June, causing complaints from victims. They promoted that they would increase the value of coins entrusted to them, but problems arose after entrusting operations to third parties. The Virtual Asset Basic Act requires that companies receiving coins must hold them directly. Additionally, guidelines on arbitrary blocking of deposits and withdrawals and obligations to monitor suspicious transactions have also been issued.

However, gaps in the system remain. For example, staking through third parties is practically impossible. Staking refers to participating in blockchain operation and verification to earn coins as a reward. Currently, exchanges entrusted with staking can either participate directly as validators in the blockchain network or entrust it to third parties. However, the first phase of the Basic Act does not include regulations related to staking, so the latter method cannot be used. Furthermore, there is a plan to review global regulatory trends on DeFi (Decentralized Finance) and prepare regulatory measures accordingly.

Since the Virtual Asset Basic Act, which focuses on user protection, has just entered the first phase of legislation, supplementary measures must be expedited. Otherwise, the staking market could shrink. Individuals face limitations in staking directly due to barriers such as expertise. Given the constantly changing nature of the virtual asset market, regulatory blind spots regarding DeFi may also arise. The National Assembly's Political Affairs Committee has already announced plans for the second phase of legislation. However, concrete discussions remain at a standstill.