2024 Review and Analysis of South Korea's Cryptocurrency Policy

Intermediate1/15/2025, 3:12:10 PM
This article aims to review South Korea's cryptocurrency policy in 2024, analyzing its historical evolution, current trends, and future directions. It also examines its global market impact through specific case studies, providing readers with a comprehensive and in-depth perspective on the complexity and significance of South Korea's cryptocurrency policy.

Introduction

South Korea, one of the most active countries in cryptocurrency trading globally, has policies that deeply affect its domestic market and serve as a guiding force for the global market. From the phenomenon of the “Korean premium” to the collapse of Terra/Luna (2022), the South Korean market has accumulated rich experience in advancing blockchain technology development and regulating crypto assets. According to a February 2024 report from The Korea Times, nearly 20% of South Korea’s young population (aged 20 to 39) has participated in cryptocurrency trading, ranking the market among the most active worldwide.

The South Korean government has recently attempted to balance risk control with technological innovation through a more comprehensive regulatory system and supportive policies. This article aims to review South Korea’s cryptocurrency policy in 2024, analyzing its historical evolution, current trends, and future directions, while also examining its global market impact through specific case studies.


Source: The OXford

Policy Background

South Korea’s Position in the Global Cryptocurrency Market

According to the “Virtual Asset Market Analysis Report” released by the Korea Financial Intelligence Unit (KoFIU) at the end of 2023, South Korea has more than 35 registered Virtual Asset Service Providers (VASPs). Among them, the two major exchanges, Upbit and Bithumb, consistently rank in the top five globally for trading volume. In 2024, these two exchanges accounted for nearly 20% of the global trading volume for Bitcoin and Ethereum. According to CoinMarketCap statistics, Upbit’s Bitcoin trading volume reached $5.7 billion in January 2024, accounting for 8.4% of the global monthly total.


Source: KoreaTimes

South Korean investors show high acceptance of cryptocurrencies, especially among the youth. In 2024, despite a significant reduction in the “Korean premium” phenomenon, price fluctuations in the South Korean market remain notable. For example, in early 2024, the price of XRP in South Korea rose by 15% after Ripple won its case against the U.S. SEC (Securities and Exchange Commission), leading the international market by about 48 hours. This indicates that the South Korean market has a forward-looking approach to investor behavior.

Historical Policy Context

2017: Initial Regulatory Attempts
In 2017, the South Korean government first intervened in the cryptocurrency market, implementing a policy prohibiting foreign investors from opening local exchange accounts to curb international speculation. According to The Korea Economic Daily, this move reduced the proportion of foreign capital flowing into South Korea’s cryptocurrency market by about 12%. Although the policy achieved some success in preventing capital outflow, international investors strongly criticized it, arguing that it undermined market openness

2018: Complete ICO Ban
Amid the boom of initial coin offerings (ICOs) used by startup projects to raise funds quickly, the South Korean government, concerned about the fraud and excessive speculation, completely banned ICOs in 2018. This policy had a far-reaching impact, leading many South Korean blockchain startups, including ICON (ICX), to relocate their fundraising efforts to Singapore. According to the Monetary Authority of Singapore (MAS), over 10% of the ICO funds raised in Singapore in 2018 came from South Korean projects.


Source: Asianinvestor

2019: Amendment to the “Specific Financial Transaction Information Act”
In 2019, South Korea amended the “Specific Financial Transaction Information Act,” marking an important milestone in cryptocurrency regulation. The amendment required all VASPs to register with KoFIU and comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. According to the 2023 annual assessment report published by KoFIU, the implementation of this law reduced the proportion of illegal transactions in South Korea’s virtual asset market from 7.2% in 2018 to 3.1% in 2023.

2021: Tax Policy Intervention
In 2021, the South Korean government began planning to tax individual cryptocurrency gains, though the policy was delayed multiple times due to technical and legal issues. By 2024, the tax policy was finally refined. According to the National Tax Service (NTS) data, the newly imposed taxes amounted to 1.7 trillion KRW (about 1.3 billion USD), a 15% increase compared to 2023.


Source: WIKI

2024 Policy Trends and Analysis

Strengthening Anti-Money Laundering and Stablecoin Regulations

In 2024, the Financial Services Commission (FSC) of South Korea released the “Enhanced AML Framework for Virtual Assets,” requiring all VASPs to submit compliance reports to KoFIU every quarter and undergo special anti-money laundering audits. According to data released by the FSC, 78 reports were reviewed in the first half of 2024, revealing 12 cases of violations, with a total fine of 1.5 billion KRW (approximately 1.15 million USD).

In the stablecoin sector, South Korea introduced the “Stablecoin Regulation Act,” mandating that all stablecoin issuers must maintain a 1:1 reserve of fiat currency and undergo regular independent audits. For example, the South Korean stablecoin project KSD (Korea Stable Digital) saw an 18% increase in trading volume after obtaining compliance certification. This regulation is seen as a direct response to the 2022 Terra/Luna collapse, aimed at boosting market confidence.

Innovation Support Policies and Blockchain Ecosystem Development

In 2024, the South Korean government established the “National Blockchain Innovation Center” to concentrate resources on research and application of blockchain technology. According to the annual report by the Ministry of Science and ICT (MSIT), the center has developed six key projects in collaboration with Samsung Electronics and Kakao, covering supply chain management, digital identity authentication, and green energy trading.


Source: KoreaTechToday

Additionally, the government launched the “Blockchain Start-Up Support Program,” offering low-interest loans and tax incentives to startups. For example, Seoul-based blockchain medical data-sharing platform BlockCure received 150 million KRW (approximately 115,000 USD) in government funding. According to an interview with BlockCure’s CEO, this funding was used to improve encrypted data-sharing technologies and expand the network of hospital collaborations.

Regulatory Exploration in Emerging Areas

In 2024, South Korea released the “DeFi Regulation Guidelines,” requiring all entities operating DeFi protocols to register with KoFIU and submit regular risk assessment reports. According to CoinDesk Korea, South Korea’s largest DeFi platform, Klayswap, saw a 15% increase in quarterly trading volume after responding to the policy, reflecting the positive impact of compliance regulations on user trust.

Tax Policy Adjustment: Balancing Strictness and Flexibility

In 2024, South Korea’s adjustment of cryptocurrency tax policies was seen as an example of “flexibility and fairness.” The National Tax Service (NTS) revised the “Personal Virtual Asset Taxation Bill,” raising the tax threshold from 2.5 million KRW to 5 million KRW and introducing a tiered tax rate. Under the revised bill, income below 50 million KRW is taxed at 20%, while income above 50 million KRW is taxed at 25%.

The core goal of this adjustment is to ease the burden on small and medium investors while increasing tax revenue from high-net-worth individuals through higher tax rates.

According to the Ministry of Finance, the adjustment is expected to generate an additional 200 billion KRW (approximately 153 million USD) in tax revenue in 2024, with the tax burden on small and medium investors decreasing by about 12%. Furthermore, the government has partnered with blockchain data analysis company Chainalysis to monitor transaction data in real-time and track undeclared income. In the first half of 2024 alone, more than 1,200 tax evasion cases were uncovered, recovering 3 billion KRW (approximately 2.3 million USD) in unpaid taxes.


Source: pymnts

Cryptocurrency and Carbon Neutrality: A Green Policy Shift

In 2024, South Korea launched the “Green Blockchain Initiative” to promote sustainable development in the cryptocurrency industry. According to the Ministry of Environment (ME), the initiative requires all cryptocurrency mining companies to submit quarterly carbon emissions reports and gives priority to companies using renewable energy. For example, a blockchain mining facility in Gyeongsangnam-do reduced its carbon emissions by 35% after installing solar power equipment, while enjoying a 30% electricity subsidy from the government.

LG CNS, a South Korean technology giant, introduced the carbon credit trading platform “GreenChain,” which became one of the highlights of the initiative. According to The Korea Times, GreenChain attracted over 50 companies within six months of its launch, with a carbon credit trading volume of 1.2 million metric tons of CO2 equivalent (MtCO2e), providing transparent and efficient technological support for carbon reduction.

South Korea’s Role in Global Cryptocurrency Regulation

South Korea’s Push for a Global Unified Regulatory Framework

In 2024, South Korea actively participated in international cryptocurrency regulatory cooperation. The Financial Services Commission (FSC) of South Korea, in collaboration with the Financial Action Task Force (FATF) and the G20, pushed for the establishment of a global unified regulatory framework for virtual assets. According to a statement from the G20 summit, South Korea’s proposed “Global Virtual Asset Regulation Proposal” received broad support from the EU and Japan.

At the same time, South Korea, Switzerland, and Singapore jointly launched the “Cross-Border Payment Chain Pilot Program,” which has shown preliminary success. The project uses blockchain technology to enable real-time cross-border settlements, significantly reducing bank fees. According to the Bank of Korea, the pilot project completed over $1 billion in cross-border payments within six months, improving payment efficiency by more than 30%.


Source: CNBC

International Spillover Effects of South Korea’s Policies

The “Stablecoin Regulation Act” implemented by South Korea in 2024 has had a significant influence on policy-making in neighbouring countries. For example, three months after the announcement of South Korea’s policy, Japan’s Financial Services Agency (FSA) introduced similar stablecoin reserve requirements, while Hong Kong strengthened its licensing management for virtual asset service providers. In addition, Southeast Asian countries like Thailand and Indonesia began referencing South Korea’s anti-money laundering practices to enhance regulations on their cryptocurrency markets.


Source: RegulationAsia

Regulation and Industry Struggles: The Complexity of Policy Evolution

Feedback and Adjustments from the Cryptocurrency Industry

South Korea’s cryptocurrency industry has shown complex feedback towards the policy adjustments in 2024. On the one hand, large exchanges such as Upbit and Bithumb have supported stricter anti-money laundering and tax policies, believing that these measures help improve market credibility and attract international capital. For instance, according to Upbit’s 2024 financial report, the number of overseas investors grew by 12%, demonstrating the positive impact of compliance policies on attracting international investors.

On the other hand, small and medium-sized Virtual Asset Service Providers (VASPs) have faced significant pressure due to rising compliance costs. According to the Korea Blockchain Association, more than 15 small exchanges were closed in the first quarter of 2024 due to their inability to meet audit and reporting requirements. This polarization has led the South Korean government to launch the “Small Business Support Program” to provide compliance tools and technical training for smaller VASPs. For example, using government-funded compliance management software, a startup exchange in Busan reduced its anti-money laundering report processing time by 40%.

Political Factors Influencing Policy

South Korea’s cryptocurrency policies are also deeply influenced by the domestic political environment. The government of President Yoon Suk-yeol has promoted the “Innovative Economy Plan,” which includes several policies to support blockchain technology, but it has encountered some resistance in the National Assembly. Some conservative lawmakers are concerned that relaxing cryptocurrency regulations could trigger financial risks and threaten the traditional banking sector. According to the Seoul Economic Daily, proposals for specialized legislation on DeFi have been delayed until 2025 for a full review due to these controversies.


Source: KED Global

Case Study: Specific Policies and Market Reactions

Stablecoin Market Regulation and the Aftermath of the Terra/Luna Incident

In 2024, South Korea continued to intensify the regulation of its stablecoin market. For example, South Korea’s largest stablecoin project, KSD (Korea Stable Digital), passed four independent audits, and its trading volume grew by 18% in the quarter following the implementation of the policies. Additionally, the aftermath of the Terra/Luna incident continues to impact the market, with investors showing a significant loss of confidence in algorithmic stablecoins. According to a survey by the Korea Blockchain Association, over 60% of respondents preferred investing in stablecoins backed by clear fiat reserves.

Decentralized Finance (DeFi) Regulation Case

South Korea’s DeFi platform Klayswap, in response to the “DeFi Regulation Guidelines,” became the first DeFi platform to complete compliance certification by improving the transparency of smart contracts and introducing third-party audits. According to official data from Klayswap, its trading volume grew by 15% in the quarter following the policy implementation. However, some small DeFi projects were forced to exit the market due to compliance costs, highlighting the centralization risk in South Korea’s DeFi industry.

Standardization of Metaverse Virtual Asset Trading

As the metaverse is a key area supported by the South Korean government, virtual asset trading in this field has been integrated into the existing cryptocurrency regulatory framework. For example, the Zepeto platform by Naver Z saw a trading volume of 2.5 billion KRW in virtual goods in 2024. The government requires such platforms to verify all transactions through identity authentication and report them to KoFIU to ensure compliance with tax and anti-money laundering regulations.

South Korea’s Promotion of Blockchain Technology Development

Blockchain Applications in Public Services

In 2024, South Korea actively promoted the application of blockchain technology in public services. For instance, South Korea’s e-government system integrated blockchain technology for identity authentication and document verification services. With this system, residents can complete passport renewal applications in just 10 minutes without submitting paper documents. This increase in efficiency is attributed to the decentralized and tamper-resistant characteristics of blockchain.

International Cooperation and Policy Differentiation

Cooperation

In 2024, South Korea strengthened its collaboration with other countries on blockchain technology. For example, South Korea partnered with Switzerland to develop a cross-border financial transaction platform based on blockchain, which enabled real-time settlement and clearing services. This cooperation not only reduced cross-border transaction costs but also enhanced transaction security.

Additionally, South Korea worked with Singapore to promote the “Cryptocurrency Compliance Innovation Program,” sharing regulatory experiences and jointly developing standardized evaluation metrics for DeFi. This initiative is seen as a significant step toward establishing a unified regulatory framework in the Asia-Pacific region.

Differentiation

Significant differences exist in the cryptocurrency regulatory frameworks between South Korea and the United States. South Korea adopts a centralized regulatory model, with the Financial Services Commission (FSC) leading the charge, and all cryptocurrency-related policies and enforcement are concentrated in one department. This model has led to higher policy implementation efficiency. For example, South Korea’s “Stablecoin Regulation Act” was implemented within just six months, from policy formulation to rollout. In contrast, the U.S. follows a decentralized regulatory model, with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) separately overseeing security-type and commodity-type crypto assets. The differing definitions of cryptocurrencies between the two agencies have increased market uncertainty.

In 2024, the SEC filed a lawsuit against cryptocurrency exchange Binance, accusing it of operating illegally as an unregistered securities exchange. This strict enforcement contrasts sharply with South Korea’s approach. South Korea tends to enhance transparency through audit and reporting requirements rather than relying on intense legal actions. For example, South Korea fined Upbit 200 million KRW for failing to submit timely audit reports but did not take further legal measures.

Conclusion

In 2024, South Korea’s cryptocurrency policies showcased a strong dual-drive characteristic of both regulation and innovation. Through multi-layered regulatory policies and international cooperation, South Korea not only successfully navigated the uncertainties in domestic and global markets but also established a unique influence in the global cryptocurrency ecosystem. However, this process also exposed challenges such as the difficulty for small businesses to survive and limited innovative vitality. Moving forward, finding the optimal balance between strict regulation and promoting innovation will remain a key issue for the South Korean government to explore.

Author: David.W
Translator: Panie
Reviewer(s): KOWEI、Pow、Elisa
Translation Reviewer(s): Ashely、Joyce
* The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.io.
* This article may not be reproduced, transmitted or copied without referencing Gate.io. Contravention is an infringement of Copyright Act and may be subject to legal action.

2024 Review and Analysis of South Korea's Cryptocurrency Policy

Intermediate1/15/2025, 3:12:10 PM
This article aims to review South Korea's cryptocurrency policy in 2024, analyzing its historical evolution, current trends, and future directions. It also examines its global market impact through specific case studies, providing readers with a comprehensive and in-depth perspective on the complexity and significance of South Korea's cryptocurrency policy.

Introduction

South Korea, one of the most active countries in cryptocurrency trading globally, has policies that deeply affect its domestic market and serve as a guiding force for the global market. From the phenomenon of the “Korean premium” to the collapse of Terra/Luna (2022), the South Korean market has accumulated rich experience in advancing blockchain technology development and regulating crypto assets. According to a February 2024 report from The Korea Times, nearly 20% of South Korea’s young population (aged 20 to 39) has participated in cryptocurrency trading, ranking the market among the most active worldwide.

The South Korean government has recently attempted to balance risk control with technological innovation through a more comprehensive regulatory system and supportive policies. This article aims to review South Korea’s cryptocurrency policy in 2024, analyzing its historical evolution, current trends, and future directions, while also examining its global market impact through specific case studies.


Source: The OXford

Policy Background

South Korea’s Position in the Global Cryptocurrency Market

According to the “Virtual Asset Market Analysis Report” released by the Korea Financial Intelligence Unit (KoFIU) at the end of 2023, South Korea has more than 35 registered Virtual Asset Service Providers (VASPs). Among them, the two major exchanges, Upbit and Bithumb, consistently rank in the top five globally for trading volume. In 2024, these two exchanges accounted for nearly 20% of the global trading volume for Bitcoin and Ethereum. According to CoinMarketCap statistics, Upbit’s Bitcoin trading volume reached $5.7 billion in January 2024, accounting for 8.4% of the global monthly total.


Source: KoreaTimes

South Korean investors show high acceptance of cryptocurrencies, especially among the youth. In 2024, despite a significant reduction in the “Korean premium” phenomenon, price fluctuations in the South Korean market remain notable. For example, in early 2024, the price of XRP in South Korea rose by 15% after Ripple won its case against the U.S. SEC (Securities and Exchange Commission), leading the international market by about 48 hours. This indicates that the South Korean market has a forward-looking approach to investor behavior.

Historical Policy Context

2017: Initial Regulatory Attempts
In 2017, the South Korean government first intervened in the cryptocurrency market, implementing a policy prohibiting foreign investors from opening local exchange accounts to curb international speculation. According to The Korea Economic Daily, this move reduced the proportion of foreign capital flowing into South Korea’s cryptocurrency market by about 12%. Although the policy achieved some success in preventing capital outflow, international investors strongly criticized it, arguing that it undermined market openness

2018: Complete ICO Ban
Amid the boom of initial coin offerings (ICOs) used by startup projects to raise funds quickly, the South Korean government, concerned about the fraud and excessive speculation, completely banned ICOs in 2018. This policy had a far-reaching impact, leading many South Korean blockchain startups, including ICON (ICX), to relocate their fundraising efforts to Singapore. According to the Monetary Authority of Singapore (MAS), over 10% of the ICO funds raised in Singapore in 2018 came from South Korean projects.


Source: Asianinvestor

2019: Amendment to the “Specific Financial Transaction Information Act”
In 2019, South Korea amended the “Specific Financial Transaction Information Act,” marking an important milestone in cryptocurrency regulation. The amendment required all VASPs to register with KoFIU and comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. According to the 2023 annual assessment report published by KoFIU, the implementation of this law reduced the proportion of illegal transactions in South Korea’s virtual asset market from 7.2% in 2018 to 3.1% in 2023.

2021: Tax Policy Intervention
In 2021, the South Korean government began planning to tax individual cryptocurrency gains, though the policy was delayed multiple times due to technical and legal issues. By 2024, the tax policy was finally refined. According to the National Tax Service (NTS) data, the newly imposed taxes amounted to 1.7 trillion KRW (about 1.3 billion USD), a 15% increase compared to 2023.


Source: WIKI

2024 Policy Trends and Analysis

Strengthening Anti-Money Laundering and Stablecoin Regulations

In 2024, the Financial Services Commission (FSC) of South Korea released the “Enhanced AML Framework for Virtual Assets,” requiring all VASPs to submit compliance reports to KoFIU every quarter and undergo special anti-money laundering audits. According to data released by the FSC, 78 reports were reviewed in the first half of 2024, revealing 12 cases of violations, with a total fine of 1.5 billion KRW (approximately 1.15 million USD).

In the stablecoin sector, South Korea introduced the “Stablecoin Regulation Act,” mandating that all stablecoin issuers must maintain a 1:1 reserve of fiat currency and undergo regular independent audits. For example, the South Korean stablecoin project KSD (Korea Stable Digital) saw an 18% increase in trading volume after obtaining compliance certification. This regulation is seen as a direct response to the 2022 Terra/Luna collapse, aimed at boosting market confidence.

Innovation Support Policies and Blockchain Ecosystem Development

In 2024, the South Korean government established the “National Blockchain Innovation Center” to concentrate resources on research and application of blockchain technology. According to the annual report by the Ministry of Science and ICT (MSIT), the center has developed six key projects in collaboration with Samsung Electronics and Kakao, covering supply chain management, digital identity authentication, and green energy trading.


Source: KoreaTechToday

Additionally, the government launched the “Blockchain Start-Up Support Program,” offering low-interest loans and tax incentives to startups. For example, Seoul-based blockchain medical data-sharing platform BlockCure received 150 million KRW (approximately 115,000 USD) in government funding. According to an interview with BlockCure’s CEO, this funding was used to improve encrypted data-sharing technologies and expand the network of hospital collaborations.

Regulatory Exploration in Emerging Areas

In 2024, South Korea released the “DeFi Regulation Guidelines,” requiring all entities operating DeFi protocols to register with KoFIU and submit regular risk assessment reports. According to CoinDesk Korea, South Korea’s largest DeFi platform, Klayswap, saw a 15% increase in quarterly trading volume after responding to the policy, reflecting the positive impact of compliance regulations on user trust.

Tax Policy Adjustment: Balancing Strictness and Flexibility

In 2024, South Korea’s adjustment of cryptocurrency tax policies was seen as an example of “flexibility and fairness.” The National Tax Service (NTS) revised the “Personal Virtual Asset Taxation Bill,” raising the tax threshold from 2.5 million KRW to 5 million KRW and introducing a tiered tax rate. Under the revised bill, income below 50 million KRW is taxed at 20%, while income above 50 million KRW is taxed at 25%.

The core goal of this adjustment is to ease the burden on small and medium investors while increasing tax revenue from high-net-worth individuals through higher tax rates.

According to the Ministry of Finance, the adjustment is expected to generate an additional 200 billion KRW (approximately 153 million USD) in tax revenue in 2024, with the tax burden on small and medium investors decreasing by about 12%. Furthermore, the government has partnered with blockchain data analysis company Chainalysis to monitor transaction data in real-time and track undeclared income. In the first half of 2024 alone, more than 1,200 tax evasion cases were uncovered, recovering 3 billion KRW (approximately 2.3 million USD) in unpaid taxes.


Source: pymnts

Cryptocurrency and Carbon Neutrality: A Green Policy Shift

In 2024, South Korea launched the “Green Blockchain Initiative” to promote sustainable development in the cryptocurrency industry. According to the Ministry of Environment (ME), the initiative requires all cryptocurrency mining companies to submit quarterly carbon emissions reports and gives priority to companies using renewable energy. For example, a blockchain mining facility in Gyeongsangnam-do reduced its carbon emissions by 35% after installing solar power equipment, while enjoying a 30% electricity subsidy from the government.

LG CNS, a South Korean technology giant, introduced the carbon credit trading platform “GreenChain,” which became one of the highlights of the initiative. According to The Korea Times, GreenChain attracted over 50 companies within six months of its launch, with a carbon credit trading volume of 1.2 million metric tons of CO2 equivalent (MtCO2e), providing transparent and efficient technological support for carbon reduction.

South Korea’s Role in Global Cryptocurrency Regulation

South Korea’s Push for a Global Unified Regulatory Framework

In 2024, South Korea actively participated in international cryptocurrency regulatory cooperation. The Financial Services Commission (FSC) of South Korea, in collaboration with the Financial Action Task Force (FATF) and the G20, pushed for the establishment of a global unified regulatory framework for virtual assets. According to a statement from the G20 summit, South Korea’s proposed “Global Virtual Asset Regulation Proposal” received broad support from the EU and Japan.

At the same time, South Korea, Switzerland, and Singapore jointly launched the “Cross-Border Payment Chain Pilot Program,” which has shown preliminary success. The project uses blockchain technology to enable real-time cross-border settlements, significantly reducing bank fees. According to the Bank of Korea, the pilot project completed over $1 billion in cross-border payments within six months, improving payment efficiency by more than 30%.


Source: CNBC

International Spillover Effects of South Korea’s Policies

The “Stablecoin Regulation Act” implemented by South Korea in 2024 has had a significant influence on policy-making in neighbouring countries. For example, three months after the announcement of South Korea’s policy, Japan’s Financial Services Agency (FSA) introduced similar stablecoin reserve requirements, while Hong Kong strengthened its licensing management for virtual asset service providers. In addition, Southeast Asian countries like Thailand and Indonesia began referencing South Korea’s anti-money laundering practices to enhance regulations on their cryptocurrency markets.


Source: RegulationAsia

Regulation and Industry Struggles: The Complexity of Policy Evolution

Feedback and Adjustments from the Cryptocurrency Industry

South Korea’s cryptocurrency industry has shown complex feedback towards the policy adjustments in 2024. On the one hand, large exchanges such as Upbit and Bithumb have supported stricter anti-money laundering and tax policies, believing that these measures help improve market credibility and attract international capital. For instance, according to Upbit’s 2024 financial report, the number of overseas investors grew by 12%, demonstrating the positive impact of compliance policies on attracting international investors.

On the other hand, small and medium-sized Virtual Asset Service Providers (VASPs) have faced significant pressure due to rising compliance costs. According to the Korea Blockchain Association, more than 15 small exchanges were closed in the first quarter of 2024 due to their inability to meet audit and reporting requirements. This polarization has led the South Korean government to launch the “Small Business Support Program” to provide compliance tools and technical training for smaller VASPs. For example, using government-funded compliance management software, a startup exchange in Busan reduced its anti-money laundering report processing time by 40%.

Political Factors Influencing Policy

South Korea’s cryptocurrency policies are also deeply influenced by the domestic political environment. The government of President Yoon Suk-yeol has promoted the “Innovative Economy Plan,” which includes several policies to support blockchain technology, but it has encountered some resistance in the National Assembly. Some conservative lawmakers are concerned that relaxing cryptocurrency regulations could trigger financial risks and threaten the traditional banking sector. According to the Seoul Economic Daily, proposals for specialized legislation on DeFi have been delayed until 2025 for a full review due to these controversies.


Source: KED Global

Case Study: Specific Policies and Market Reactions

Stablecoin Market Regulation and the Aftermath of the Terra/Luna Incident

In 2024, South Korea continued to intensify the regulation of its stablecoin market. For example, South Korea’s largest stablecoin project, KSD (Korea Stable Digital), passed four independent audits, and its trading volume grew by 18% in the quarter following the implementation of the policies. Additionally, the aftermath of the Terra/Luna incident continues to impact the market, with investors showing a significant loss of confidence in algorithmic stablecoins. According to a survey by the Korea Blockchain Association, over 60% of respondents preferred investing in stablecoins backed by clear fiat reserves.

Decentralized Finance (DeFi) Regulation Case

South Korea’s DeFi platform Klayswap, in response to the “DeFi Regulation Guidelines,” became the first DeFi platform to complete compliance certification by improving the transparency of smart contracts and introducing third-party audits. According to official data from Klayswap, its trading volume grew by 15% in the quarter following the policy implementation. However, some small DeFi projects were forced to exit the market due to compliance costs, highlighting the centralization risk in South Korea’s DeFi industry.

Standardization of Metaverse Virtual Asset Trading

As the metaverse is a key area supported by the South Korean government, virtual asset trading in this field has been integrated into the existing cryptocurrency regulatory framework. For example, the Zepeto platform by Naver Z saw a trading volume of 2.5 billion KRW in virtual goods in 2024. The government requires such platforms to verify all transactions through identity authentication and report them to KoFIU to ensure compliance with tax and anti-money laundering regulations.

South Korea’s Promotion of Blockchain Technology Development

Blockchain Applications in Public Services

In 2024, South Korea actively promoted the application of blockchain technology in public services. For instance, South Korea’s e-government system integrated blockchain technology for identity authentication and document verification services. With this system, residents can complete passport renewal applications in just 10 minutes without submitting paper documents. This increase in efficiency is attributed to the decentralized and tamper-resistant characteristics of blockchain.

International Cooperation and Policy Differentiation

Cooperation

In 2024, South Korea strengthened its collaboration with other countries on blockchain technology. For example, South Korea partnered with Switzerland to develop a cross-border financial transaction platform based on blockchain, which enabled real-time settlement and clearing services. This cooperation not only reduced cross-border transaction costs but also enhanced transaction security.

Additionally, South Korea worked with Singapore to promote the “Cryptocurrency Compliance Innovation Program,” sharing regulatory experiences and jointly developing standardized evaluation metrics for DeFi. This initiative is seen as a significant step toward establishing a unified regulatory framework in the Asia-Pacific region.

Differentiation

Significant differences exist in the cryptocurrency regulatory frameworks between South Korea and the United States. South Korea adopts a centralized regulatory model, with the Financial Services Commission (FSC) leading the charge, and all cryptocurrency-related policies and enforcement are concentrated in one department. This model has led to higher policy implementation efficiency. For example, South Korea’s “Stablecoin Regulation Act” was implemented within just six months, from policy formulation to rollout. In contrast, the U.S. follows a decentralized regulatory model, with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) separately overseeing security-type and commodity-type crypto assets. The differing definitions of cryptocurrencies between the two agencies have increased market uncertainty.

In 2024, the SEC filed a lawsuit against cryptocurrency exchange Binance, accusing it of operating illegally as an unregistered securities exchange. This strict enforcement contrasts sharply with South Korea’s approach. South Korea tends to enhance transparency through audit and reporting requirements rather than relying on intense legal actions. For example, South Korea fined Upbit 200 million KRW for failing to submit timely audit reports but did not take further legal measures.

Conclusion

In 2024, South Korea’s cryptocurrency policies showcased a strong dual-drive characteristic of both regulation and innovation. Through multi-layered regulatory policies and international cooperation, South Korea not only successfully navigated the uncertainties in domestic and global markets but also established a unique influence in the global cryptocurrency ecosystem. However, this process also exposed challenges such as the difficulty for small businesses to survive and limited innovative vitality. Moving forward, finding the optimal balance between strict regulation and promoting innovation will remain a key issue for the South Korean government to explore.

Author: David.W
Translator: Panie
Reviewer(s): KOWEI、Pow、Elisa
Translation Reviewer(s): Ashely、Joyce
* The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.io.
* This article may not be reproduced, transmitted or copied without referencing Gate.io. Contravention is an infringement of Copyright Act and may be subject to legal action.
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