South Korea probing native tokens of crypto exchanges

Crypto Regulation
South Korea probing native tokens of crypto exchanges

Reports emerging from South Korea indicate that the country’s financial authorities have launched an extensive investigation to determine whether domestic cryptocurrency exchanges issued and traded their own coins.

FTX collapse has South Korean authorities worried

According to the reports, South Korea’s Financial Intelligence Unit (KoFIU) sent requests to all crypto exchanges domiciled in the country to submit records of self-issued tokens.

The probe comes in the wake of revelations that the collapse of FTX, the third-largest crypto exchange in the world, was exacerbated by the company’s illegal operations with its self-issued coin, FTT.

KoFIU had a meeting on 16 November with five of the largest virtual exchanges in the country, including Bithumb, Coinone, Doonamoo, and Streami. In the meeting, the crypto exchanges reiterated that what happened at FTX couldn’t happen in South Korea since the issuance of virtual assets by exchanges is restricted in the country. 

The exchanges also added that the FTX collapse was mainly the result of the company’s improper use of customers’ funds and the abuse of its FTT token.

South Korea’s Act on Reporting and Use of Specific Financial Information limits domestic crypto exchanges from selling or exchanging digital assets issued by themselves or any of their affiliates.

The purpose of the KoFIU investigation is to ensure regulatory compliance for the safety of investors.

An official from the financial regulator said:

“In accordance with the Enforcement Decree of the Specific Financial Transaction Information Act, domestic exchanges are restricted from handling self-issued coins, but there are related suspicions and we would like to confirm them in detail.”

Flata exchange suspected of trading self-issued cryptocurrency

A previous examination of major crypto exchanges in Korea revealed no history of trading self-issued coins. However, a Financial Services Commission (FSC) spokesperson revealed plans for a deeper investigation because “there are still some doubts” about in-house token listings.

There has recently been speculation that the virtual currency FLAT, listed in 2020 by the Daegu-based Flata Exchange, is a self-issued coin. Representatives of the exchange had since told investigating authorities that the individual involved in the issuance of FLAT stepped down as a director of the exchange in May 2021 before Flata registered with the Commission as a crypto exchange.

South Koreans made up the majority of FTX users

Korean financial authorities are also looking into FTT transactions via domestic virtual currency exchanges to determine the actual amount of damage caused to domestic investors by the collapse of FTX

According to reports from the regional press, about 6K Korean investors collectively held about 110K FTT tokens valued at more than 2 billion won ($1.475 million) at the time the Bahamas-based crypto exchange filed for bankruptcy protection.

Data from crypto pricing and analytics service CoinGecko also shows that South Koreans were the biggest users of FTX based on the number of monthly unique visitors from the first half of 2022. According to the data, South Koreans made up more than 6% of FTX’s total traffic, roughly translating to nearly 300K unique monthly users in that period. 

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