The current crypto climate has sent some of the most prominent digital asset players down the terrain of illiquidity, with some battling to stay afloat. At the moment, the spotlight is on South Korean-based crypto exchanges.
Following the widespread bankruptcy fears that have continued to envelop the broader crypto ecosystem due to the fall of the FTX exchange, South Koreans are concentrating on local platforms. As a result, the current belief about the Korean digital asset space is that the industry is safe from insolvency.
According to a local news outlet, South Korean crypto giants have several critical differences with international digital asset exchanges like FTX. The paper added that Korea’s famous “big four” firms, Upbit, Korbit, Bithumb, and Coinone, are miles apart from FTX.
Furthermore, the media platform revealed that it has researched the operations of the big four over the years and found one striking similarity between them. The enterprises have an almost 1:1 exposure to price changes of the largest crypto asset, Bitcoin.
The newspaper revealed that all four exchanges recorded significant gains in 2017 when the value of BTC shot up. However, they all posted massive losses in 2018, with Korbit’s losses reaching $350 million, the most among them.
Accordingly, the paper disclosed that the business model adopted by the exchanges is heavily dependent on revenue generated from transaction fees. “All four exchanges failed to have alternative ways of generating cash aside from commissions from trading.”
But other business dealings generated less than 1% of the firm’s total pre-tax earnings.” Another interesting thing about South Korean exchanges is that they do not issue their native tokens compared to their oversea counterparts.
Meanwhile, one crucial aspect of this is that exchanges do not issue assets. Hence, it has primarily reduced their risks.
However, some analysts believe that FTX’s decision to involve its native asset, FTT, in its business is responsible for the crash. Similarly, the paper added that the sharp decline of Terra network’s native tokens in May triggered the downfall of the once-stable TerraForm Labs.
Is Regulation The Key?
Since late 2017, South Korean authorities have banned the development and launch of tokens by crypto exchanges. As a result, there were strict regulations regarding issuing native tokens by crypto asset service providers.
The country has been ramping up its regulations for some time now, and crypto exchanges were required to prove to the regulator that their funds are separate from their customers’ funds.
Moreover, the collapse of the Terra LUNA ecosystem has fueled another round of regulatory crackdowns. As a result, the South Korean government has implemented various measures to prevent such incidents from occurring again.
Stablecoin regulations are forming the core of the new regulatory mechanism in the country. The country’s vice president of the Financial Supervisory Service, Lee Myung-soon, is quoted as having revealed that the industry should expect new laws in response to the FTX scandal.
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