Crypto may pose a ‘major threat’ to financial stability: Korea Institute of Finance
by Arthur · September 7, 2022
A new report from the Korea Institute of Finance (KIF) indicates that increasing mainstream adoption of crypto in South Korea could make the traditional financial system “unstable.”
KIF senior researcher Lee Dai-gi suggested that the growing number of firms investing in volatile cryptocurrencies could experience a loss of profits, which could lead to a “deterioration in asset quality” and risk damaging firms’ reputations.
While crypto’s impact in South Korea “is still negligible,” the researcher said the industry’s growth in the country since 2019 indicates that “the impact of virtual assets is expected to continue to expand.”
“Considering the increasing number of related crimes, virtual assets may emerge as a major threat to financial stability,” the report added.
In 2019, there were 914,000 crypto users in South Korea, according to KIF. In 2020 it rose to 1.21 million, and in 2021 there were 5.58 million users.
Korean regulatory agencies have long considered how to apply regulation without affecting the growing crypto market, with some form of regulation already under consideration.
On Tuesday, the Financial Services Commission (FSC) announced plans to roll out a digital securities market operated by the Korea Exchange (KRX), one of the country’s three stock exchanges.
Importantly, asset issuances on the planned market will all use blockchain technology likely in the form of so-called security tokens (STOs).
The commission will provide more guidance on the commercialization of said assets, as well as how they can be issued in Q4 this year.
Incorporating these assets is necessary “to support the healthy development of the market and industry based on the investor [protections] and financial stability, the announcement states.
South Korea’s relationship with crypto
Coupled with crypto’s erratic growth in South Korea and abroad, the country has grappled with how best to capitalize on such a new industry.
So far, the population has made its voice clear in the matter, select pro-crypto President Yoon Suk-yeol in March. “To realize the unlimited potential of the virtual asset market, we need to revise regulations that are far from reality and unreasonable,” he so in January.
Regulators in the country also took action after this implosion of the stablecoin project Terra in May. South Korea was also home to Terraform Labs and the firm’s co-founder Do Kwon.
The task now appears to be to balance innovation in the sector while limiting consumer losses similar to Terra’s collapse.
