[Virtual Asset Industry in Crisis ②] Shrinking Industry, Companies Moving Overseas

After ICO Ban, Korean Companies Issue Tokens Overseas
Lack of Legal Framework Hinders Business Diversification

The domestic virtual asset industry has entered a stagnant phase. Since the complete ban on Initial Coin Offerings (ICOs) in 2017, Korean companies have turned their attention overseas. In contrast, foreign companies are stepping up efforts to penetrate the Korean market. Regulatory gaps and the lack of a legal framework are holding back the domestic industry ecosystem.

According to the virtual asset industry on December 1, all forms of ICOs have been effectively banned since the government’s emergency regulations on virtual assets in 2017. At the time, financial authorities explained that the risks of fraud, such as illegal fundraising disguised as ICOs, were increasing, as well as concerns about market overheating and broader consumer harm due to speculative demand. As a result, they decided to ban all forms of ICOs, regardless of technology or terminology.

More than eight years have passed since these measures were implemented, but nothing has changed. In the meantime, Korean companies have been conducting ICOs or operating their businesses overseas. Notable examples include Kakao’s KAIA, Nexon’s NEXPACE, and Nexustar’s CROSS. The reason for issuing overseas is simple: the domestic market remains blocked, while overseas markets are open and have well-developed infrastructure.

An official at a company currently conducting virtual asset business overseas explained, “Globally, Switzerland and Singapore have flexible policies and relatively smooth licensing processes. Many virtual asset blockchain companies are based there.”

This trend is not limited to ICOs; it is also evident in the stablecoin sector, which is emerging as the next-generation payment infrastructure. Kookon has signed a memorandum of understanding (MOU) with the Solana Foundation overseas to build stablecoin payment infrastructure. In addition, Hecto Financial has become a partner of Circle, a major stablecoin issuer, as Korean companies continue to expand cooperation with large overseas firms. Although there is active movement within Korea, business remains stagnant due to the lack of relevant legislation.

An official from a company preparing to launch a stablecoin business pointed out, “While stablecoins are rapidly emerging as the next-generation payment method, the regulatory environment for won-based stablecoins in Korea remains at a standstill. With no timeline for domestic institutionalization, it is only natural for related businesses to look abroad in order not to fall behind global financial trends.”

On the other hand, foreign operators are ramping up their efforts to enter the Korean market as time goes by. In October, Binance, the world’s largest virtual asset exchange, completed its acquisition of GOPAX, the fifth-largest exchange in Korea. Recently, there have also been rumors of Bybit, the world’s second-largest exchange, acquiring Korbit. In this environment, the competitiveness of domestic virtual asset companies is deteriorating. For instance, Upbit and Bithumb have not been able to actively pursue new business initiatives. The main revenue source for exchanges-transaction fees-tends to fluctuate depending on market conditions. As such, relying solely on fees for business is highly risky.

In contrast, overseas exchanges are diversifying their businesses to move away from fee-dependent revenue structures. The most prominent example is Coinbase. Premium subscription products such as Coinbase One, as well as other subscription and service segments including institutional ETF custody, have accounted for as much as 40% of the company’s total revenue.

An official from a virtual asset exchange said, “For example, won-based stablecoins could serve as a foundation for exchanges to interact and integrate with other businesses, but due to the lack of legislation, companies are limited to mere discussions.”

Jung Kutae, CEO of Infiniteblock, emphasized, “The domestic virtual asset industry is in a ‘stagnant transitional period,’ neither booming nor in crisis. The greatest concern is that, despite having ample growth potential, the lack of a proper system is turning the market into a ‘passive market’ that cannot expand.”