South Korea’s Busan city wants to be blockchain central. Did everyone get the memo?

Busan, South Korea’s second largest city, launched its blockchain initiative four years ago to roll out the welcome mat for the growing industry, hoping to attract technology, jobs and investment and shift away from a reliance on seaborne trade and tourism .

The problem is that the message did not seem to reach the blockchain sector.

Busan, with a population of 3.3 million people and home to one of Asia’s leading film festivals, was designated a special blockchain zone in July 2019 under the administration of former President Moon Jae-in. It allowed the city to host blockchain projects that would face restrictions and red tape elsewhere in the country.

Examples include local firm Coinplug developing a blockchain-based app for public safety reporting, and in 2020 the city released B PASS – a blockchain-based mobile app and all-in-one ID and electronic wallet for Busan citizens.

However, the Busan Chamber of Commerce conducted a survey in July this year of 465 blockchain businesses in the country and found that more than 48% were unaware of Busan’s status as a blockchain-friendly zone. Another 21% said they had heard of the project but did not know in detail what it does.

This lack of interest also appears to be reflected in the use of B PASS, which has been available for two years but only has around 10,000 downloads, according to local media.

Busan’s blockchain performance has not been impressive, said Lee Jang-woo, an assistant professor of global entrepreneurship at Hanyang University in Seoul and a blockchain specialist.

“I anticipated this failure to some extent because only some services and companies using blockchain technology enjoyed the relaxed regulations, while businesses using crypto were excluded,” Lee said. He added that South Korea’s negative attitude towards crypto at the time likely influenced this approach.

Shifting strategy

The city – located on the southeastern tip of the Korean peninsula, about 325 kilometers south of the capital Seoul – is now changing its strategy and signed agreements in the last two months with three global cryptocurrency exchanges: Binance, FTX and Huobi. The plan is to build the country’s first city-supported digital asset exchange.

“We will build a new growth engine for the local economy and turn it into a global digital financial hub,” Park Heong-joon, the mayor of Busan, said at last month’s partnership signing with Binance, the world’s largest cryptocurrency exchange.

He said the city wants to attract more blockchain talent and is offering tax breaks as part of the package.

Hanyang University’s Lee said the move to bring cryptocurrencies into the mix makes sense.

“Part of that is building the digital asset exchange. I think so [the city] has now got the right direction and strategy, said Lee.

Busan needs a revitalization plan. The chamber of commerce said Thursday that the number of local businesses last year with annual sales of more than 100 billion Korean won ($70 million) hit a record low of 27, or half the 55 recorded in 2008.

What will be next?

While Busan has signed agreements with global exchanges to build its own city-backed crypto marketplace, details on how the local exchange will operate, what it will trade and the size of the investments involved are hard to come by.

An official in the city’s blockchain innovation team, who declined to be identified by name, said Discard that it is too early to give details of what the stock exchange will look like.

Lily Zhang, the chief financial officer of Busan’s latest signing Huobi Global, was a little more forthcoming.

“We are not in a position to reveal too many details about the exchange, but we do know that it intends to roll out a line of stablecoins and stablecoin-related trading pairs,” Zhang said in an emailed response to questions.

“Busan’s blockchain deregulation zone offers an environment conducive to developing the latest digital financial technologies. This covers applications in industries ranging from tourism to logistics, lifestyle services and more,” Zhang said.

“Such applications are not directly connected to cryptocurrency exchanges, but it increases general awareness of blockchain technology and may lead to more integrations further down the line,” she added.

Huobi has said it will bring 1,500 blockchain professionals from abroad to Busan, while its other partners, Binance and FTX, have said they will provide technology and infrastructure support to develop Busan’s exchange.

Liquidity

Leon Foong, Binance’s head of Asia Pacific, said Busan could benefit from the liquidity of global exchanges.

“And in terms of global liquidity, we’re fortunate enough to be in a position where we actually have one of the largest global liquidity pools,” he said Discard in an interview.

In return, exchanges see opportunities in moving back to one of the most attractive crypto markets they had abandoned due to tighter regulations, said Hanyang University’s Lee. “The partnerships fulfill needs on both sides,” Lee said.

Binance and FTX both left the South Korean crypto market last year as a result of tougher regulations, while Huobi Korea remained but failed to meet the requirements to offer fiat-to-crypto services and thus remains a token-to-token exchange.

All three exchanges said they will open offices in Busan, but Binance and FTX are not expected to operate crypto exchanges.

However, Foong at Binance did not rule out that option for the future. “We’re always exploring, but we want to do it the right way,” he said.

When Busan signed its partnership agreement with Huobi this month, Mayor Park said in a statement that he hoped the company “will spread the word about Busan’s strong environment and support for digital finance, so we can draw more blockchain talent to our city.”

To that end, Huobi said it will be the main sponsor of Busan Blockchain Week 2022, which starts on October 27. This gathering could be a key event to check if the message that Busan is open to blockchain and crypto business is now loud and clear.