Terraform Labs CEO Do Kwon was arrested in Montenegro and is now being sought by the United States and South Korea . Some people prefer Kwon to be sent to the U.S., where the punishment may be more severe.

The collapse of the stablecoin terraUSD project had a ripple effect around the globe, leading to the loss of 60 billion. The longest shadow, however, fell on Korea.

SungMo Park is the head of Korea Business Development at Polygon Labs. He said that even his grandpa was aware of Terra’s luna token. Terra-based projects were left homeless, at least for a short time. An administration that was once very pro-crypto started to seem less enthusiastic. The state of crypto regulations in Korea are not very friendly to this day.

Terraform Labs is based in Singapore and not South Korea. However, the project had a significant impact on Kwon’s home country. The crash was still fresh in my mind when I visited Seoul several months ago. I heard people sell their homes and invest in luna. Also, there was speculation that Kwon would likely have died if he had returned to Korea following the crash.

It is clear that the fall of a prominent Korean-born founder had a psychological effect. Do was a young Korean leader who made a significant change on the global stage. No software company in Korea was having that impact at the global level,” Jiyun Kim said, CEO and founder of DSRV which operated a Terra Validator in Korea. “He was like a north star for Korean crypto-founders.”

Lloyd Lee, the founder and CEO at Hyperithm – a digital asset manager based both in Seoul and Tokyo – said that Koreans don’t think Koreans can go global.

Two stars actually broke this belief. “One was BTS [the Kpop boyband], and the other was Do Kwon.”

Sideways

Korea is one the world’s most important markets for crypto. According to Coinhills, the Korean won is second most traded currency in the world for bitcoin (BTC). In September, the Financial Intelligence Unit of Korea (FIU), in a report, stated that there were approximately seven million crypto users registered in Korea. According to current exchange rates, the digital asset market was valued at nearly 23 trillion won in the first half 2022. , a more recent report, shows that it dropped to 19 trillion won by the second half of 2018.


Two stars actually broke this belief. The first was BTS [the Kpop boyband] and the second was Do Kwon.

Terra’s crash may have had a negative impact on the local crypto market, but there were also other factors. According to the FIU, domestic virtual assets showed a 58% decrease in market capitalization from the second half 2021 to the first half 2022. The report attributes this decline to the economic toll taken by the Ukraine crisis, increasing interest rates, and decreasing liquidity. “As well as a decrease in trust in virtual asset due to the Terra Luna incident.”

Terra’s collapse was not the end. CoinGecko reports that Korea was the most affected of the collapse of FTX.com. Just this month the Korean exchange Gdac was hack to nearly $13,000,000. In December, major crypto exchanges removed the controversial token Wemix from their platforms. This led to a market cap loss of almost $300 million. This would not be encouraging to businesses and regulators who suspected crypto was dangerous.

Terra’s crash and other factors seem to have also had an impact on politics. Candidates in the last presidential election adopted positions that were crypto-friendly, as an apparent effort of winning over young voters. The winner of the election, President Yoon Suk Yeol, pledged to limit taxes on crypto gains and allow Initial Coin Offerings. The media flooded with headlines indicating a crypto-friendly government. Prices of at least one Korean crypto project rose on the high hopes.

Yoon was elected president in May 2022 – the same month Terra fell apart.

Hyperithm’s Lee stated that “the new government cannot just be pro-crypto while all of this Terra-Luna is happening and people are losing assets or money and companies are going into bankruptcy… all these social issues are occurring at the same time.” They can’t simply say that they’re keeping their pro-crypto position. They backed off a little.”

Hedging risk

In early this year, the Korean media reported that legislators were working on 17 draft laws focusing primarily on investor protection. As of yet, none of the bills have been passed. “We were well on our way to making some new crypto laws, especially since the new Presidential administration began. There hasn’t been any new legislation, just discussions in the Parliament,” said Jongbaek Park, partner at Bae, Kim and Lee.

Terra Community AMA with Do Kwon April 2021 (Terra).

The focus of crypto regulation at the moment is primarily on preventing money laundering and terrorist activities. In 2020, the Korea Anti-Money Laundering (AML), Act was amended to include Virtual Asset Service Providers (VASP). Korean crypto exchanges are required to report to FIU, and to conduct KYC checks on new clients. They also have to report any suspicious transactions.

Currently, only five crypto exchanges trade in Korean won. Park explains that the government wanted to limit the number of VASPs in order to tighten up anti-money laundering regulations. They set up a rule that you must have a special type of bank account if you wish to use a virtual asset service using Korean won.

Park stated that the Korean government places too much emphasis on the prevention and mitigation of risk, such as investment protection or market stability protection, than encouraging possible innovations to the market.

Park said that AML regulations are good for getting rid of bad actors such as those who do money laundering or terrorist financing. The government is not legislating other regulations.

CoinDesk Korea reports that the arrest of Do Kwon helped to bring crypto assets into the regulatory spotlight. This has added some urgency in a long-delayed procedure. A crypto-related law could be passed this month and another next month. These bills deal with the protection of users’ deposits, as well as the ban on the use of unreported information, manipulating market prices and illicit transactions.

The Tera-luna and FTX scandals were still unresolved last year. “The pace of change on the digital-assets market is extremely fast. Therefore, related bills should be carefully enacted in accordance with the situation,” Yoon Chan-hyun told CoinDesk Korea late in March.

Yoon stated that the bill on digital asset trading, which is currently pending at the National Assembly, should be passed in the second quarter this year. First, enacting a transactional law is the first step. The second is enacting a basic law.”

In February, Korea released guidance on STOs, or security token offerings. The Korean government did not want to allow token-type securities generally, despite the fact that they had designated regulatory sandboxes in four STO projects. Park said that these guidelines represent a major change. A closer look at the guidelines reveals that they aren’t as progressive as first appears.

The FSC has announced STO guidelines, which is good news for the crypto world. If you look at the specifics of the guideline, it has a restrictive approach to the scope of STOs. “They essentially exclude public chains,” Park said.

It is not unusual for the crypto-trajectory of a country to be shaped at least temporarily by traumatizing events. In Japan, Mt. The hacks of the Coincheck and Mt. But these same events also prompted Japan devised some of the most clear crypto regulations in the entire world. The United States is still recovering from the collapse of FTX. This was a major blow to an industry which already had many detractors in Washington. Some crypto businesses are now avoiding United States due to recent crackdowns from the Securities and Exchange Commission.

Although the dust from the Terra crash is still not settled in Korea, Kwon’s recent arrest brings this story closer to closure. After the crash, several people told me traditional Korean companies were more cautious about being associated with cryptocurrency. “Before Terra all the big corporations were on board. Investment banks invited us to present seminars on crypto (exchange-traded fund) or how they could enter the crypto market. Hyperithm’s Lee says, “I guess the attention is now a little selective.” “Not all companies are interested anymore in crypto.”

Korea’s retail market still has a lot of power. Korea was responsible for the recent rise of the XRP coin.

Retail traders will return whenever the next bull-market comes. At $60,000 bitcoin, I had friends ask me if they should buy bitcoin or sell their home. This mentality of all or nothing is not unusual in Korea,” said Anthony Yoon.

Terra members who left the Terra community have moved on to other chains. In the crypto-industry, there is still a lot of optimism. SungMo Park said, “Right Now the wave is gaming firms.” “I think entertainment will be the next big wave. “We are very good at gaming and entertaining, and have everything we need to succeed.”

Other words, the Korean market has already moved past Terra’s death. If ever, it may take some time to see crypto-friendly regulation. But Korean traders and builders aren’t all stuck in the past.

“People move quickly on to the next hype, or incident, to keep up with fast-moving Korean fashions,” said Erica Kang. She is the founder and CEO KryptoSeoul in Korea, a team that builds communities.

When a massive, devastating crash occurs, people are naturally shocked and negatively affected. They also harshly criticize. Then, perhaps weeks later, the players are back on their feet.

Ben Schiller is the editor.