South Korea to Organize Crypto Oversight Community Ahead of the Terra Collapse

The catastrophic collapse of Terra stablecoins and the overall Terra ecosystem has led to the development of a supervision and control committee for cryptocurrencies set to launch early this month. The Terra ecosystem’s collapse has had severe consequences throughout the world, but undoubtedly, South Korea was the most affected country of them all. After all, it is also the birthplace of Terraform Labs.

Amid signs that Terraform Labs CEO and co-founder Do Kwon was facing severe scrutiny in South Korea, the nation’s authorities announced Tuesday that it would set a new Digital Asset Committee early this month, as reported by a local news outlet NewsPim. The report also indicated that the entity will serve as a watchdog over the cryptocurrency and digital asset industry. Moreover, it will also be liable for policy separation and supervision until the execution of the upcoming Framework Act for Digital Assets and the establishment of an official government entity that would oversee crypto operations.

The Digital Asset Committee is an extension and reorganization of an existing entity that supervises crypto assets and is expected to improve the effectiveness of crypto regulations. The committee aims to do it by streamlining the government’s efforts on cryptocurrency and other digital assets.

Additionally, the translated version of the original report (which appeared in Korean) also stated that a ministry would be launched to protect crypto and NFT investors at the same level of stock investor protection. The original report was translated by Hwang Seok-jin, a Professor at Dongguk University, who is also a member of the Special Committee on virtual Assets.

Seok-jin also compared South Korea’s daily crypto trading volume to that of the Kosdaq stock exchange. He suggested that the crypto industry should be treated in the same way as conventional equities.

The Aftermath of the Terra Collapse

Terra LUNA and TerraUSD (UST) stablecoins, which were built on an algorithm to maintain a peg to the $USD, crumbled earlier last month, which led to the collapse of the overall Terra ecosystem and other cryptocurrencies. This plunge was part of a natural “purge” of the overall industry which occurs in every bear market. The collapse also caused the Tether (USDT) stablecoin to lose its peg to the U.S. dollar. Looking at the current crypto landscape, South Korean regulators have taken certain measures to speed up crypto laws since the collapse affected around 280,000 South Koreans.

The authorities are planning to launch the Digital Asset Basic Act (DABA) and to back it up with more legislation by 2024. This bill, set to launch next year, will be drafted based on the international norms and will be dependent on the experience of the world’s largest economies. South Korea’s local Financial Stability Board (FSB) will coordinate with the Basel-based Bank for International Settlements (BIS), the U.S., and European Union (EU) regulators.

With South Korea’s daily crypto trading volume averaging nearly $9 billion (or, 11.3 trillion Korean Won), similar to the stock market trading volume, regulators believe crypto investors should receive similar protection measures as stock traders.

On the other hand, the South Korean government plans to expand the existing foundation for crypto transactions, thereby allowing banks and financial institutions to develop their own platforms to exchange crypto assets with fiat money. At present, there are only four banks in the country that have this ability. The government also plans to institutionalize NFTs (non-fungible tokens) and launch a regulatory framework for initial coin offerings (ICOs)