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Terra Luna is in the news again as the US and South Korea battle to extradite Terraform Labs co-founder and CEO Do Kwon, a Korean national who was recently arrested in Montenegro. Perhaps the Korean crypto community is more confident of the outcome, but some prefer sending Kwon to the US because the punishment could be harsher.
The collapse of the Terra Luna stablecoin project has reverberated around the world, causing an estimated $60 billion to evaporate. But the longest shadow fell over Korea, where it still exists today.
The disaster of 2022 was reported by the local media, who reported that about 200 thousand local residents fell victim to the project. “Even my grandfather knew about the moon,” said Sungmo Park, head of Korean business development at Polygon Labs, leaving the project Terry was building homeless, at least temporarily. The pro-crypto administration is starting to sound less enthusiastic. Until recently, cryptocurrency regulations in Korea were very hostile.
Terraform Labs is based in Singapore, not Korea, but the project plays a special role in Kwon's homeland. When I visited Seoul a few months ago, the memory of the accident was still fresh. I've heard of people selling their homes to invest in Luna and predicting that if Kwon returns to Korea after the accident, he might die.
Obviously, the fall of the famous Korean founder had a psychological impact. “Do is a very young Korean leader with a huge impact on the global stage. No program in Korea has had such a big global impact,” said Jeon Kim, CEO and co-founder of DSRV, which runs the Terra verification tool in Korea. It is a kind of guide for cryptocurrency founders in Korea.”
“Koreans don’t really believe that Koreans can go global,” said Lloyd Lee, founder and CEO of Hyperithm, a digital asset management firm based in Seoul and Tokyo.
“There are two stars who completely shattered that belief. One is [K-pop boy group] BTS, and the other is Do Kwon.”
go sideways
In terms of crypto, Korea is one of the strongest markets in the world. According to Coinhills, the Korean won is the second most traded national currency for bitcoin after the US dollar. A report released by the Korea Financial Intelligence Unit (FIU) last September indicated that there are nearly seven million cryptocurrency users in Korea. The digital asset market size in the first half of 2022 was nearly 23 trillion won, or about $18 billion at current exchange rates. According to a new report, that amount dropped to 19 trillion won in the second half of this year.
Two stars have already violated this belief. One is [K-pop group] BTS, and the other is Do Kwon.
It seems that the collapse of Terra has affected the local cryptocurrency trading, although of course there are other factors involved. According to the Financial Intelligence Unit, in the first half of 2022, the domestic virtual asset market showed a 58% decline in market capitalization compared to the second half of 2021. In the report, this decline is explained by the economic consequences of the Ukrainian crisis. , an increase in interest rates and a decrease in liquidity, "as well as a decrease in confidence in virtual assets as a result of the Terra Luna incident."
Unfortunately, Terra Luna is not the end of the drama. According to CoinGecko, Korea was the hardest hit by the FTX.com crash. This month alone, the Korean exchange Gdac was hacked for nearly $13 million. In December, a major cryptocurrency exchange stopped issuing the controversial Wemix token, causing the loss of nearly $300 million in market cap. None of this will reassure regulators and companies that already suspect cryptocurrencies are dangerous.
The Terra Luna disaster appears to have, among other things, political implications. In last year's presidential election, the candidates took a pro-crypto stance, clearly looking to win over young voters. The winner, Chairman Yoon Seok Yeol, vowed to tax caps on cryptocurrency winnings and allow initial coin offerings. His win was accompanied by several media headlines pointing to a crypto-friendly administration, and at least one Korean crypto project rose in value due to such high hopes.
No Yoon became president in May 2022, the same month that Terra collapsed.
"The new government can't just support cryptocurrency when all these things are happening in Terra Luna, people losing their assets or money and companies going bankrupt... and all these social problems are happening at the same time." He told me of Hyperhythm. “They can't say we're going to stick to our pro-crypto stance. So they backed off a bit.”
Hedging risk
Earlier this year, Korean media reported that lawmakers were working on the Digital Basic Assets Act (DABA), which collectively refers to 17 bills primarily intended to protect investors. To date, none of these laws have been approved. We are on track to pass new crypto laws, especially once a new presidential administration takes office. But until now, there have been almost no new rules, only debates in parliament,” said Jeonbaek Park, partner in Bae, Kim and Lee.
© CoinDesk Terra AMA with community contribution with Do Kwon (Apr 2021) (Terra)Currently, the main focus of cryptocurrency regulation is to prevent money laundering and terrorism. In 2020, the Korean Anti-Money Laundering Act was amended to include Virtual Asset Service Providers (VASPs). Korean cryptocurrency exchanges are required to report to the Financial Intelligence Unit, perform Know Your Customer (KYC) checks on new customers, and report suspicious transactions.
Meanwhile, there are currently only five cryptocurrency exchanges trading the Korean won. Park said the government is trying to limit the number of VASPs to make anti-money laundering regulations stricter than before. So they created a guide: If you want to get a virtual asset service with Korean won, you need to create a special bank account category.
“The Korean government tends to focus too much on risk prevention, such as protecting investments, and protecting market stability, rather than insisting on potential innovation impact on markets or society,” Park said.
“Anti-money laundering regulations help eliminate bad actors, such as those involved in money laundering or terrorist financing,” Park added. "The problem is that the government does not make laws."
According to CoinDesk Korea, Do Kwon's arrest helped bring the cryptocurrency asset back into the spotlight from regulators, adding urgency to a long-delayed process. A crypto-related bill could be voted on this month and another next month. The bill refers to protecting user deposits, as well as prohibiting the use of confidential information, market price manipulation and illegal transactions.
“Last year, the Tera-Luna scandal remained unresolved, followed by the FTX scandal. The pace of change in the digital asset market is high, so the relevant invoices should be carefully approved based on the situation,” Yoon Chang Hyun, a member of the National Assembly, told CoinDesk. Korea in late March.
“The digital asset trading bill (currently pending in the National Assembly) is expected to be passed in the second quarter of this year,” Yoon said. The first step is the adoption of the transaction law, and the second is the basic law.
In February, there was a sign of progress when Korea released guidelines on Security Token Offerings, or STOs. “The Korean government is reluctant to allow the use of tokens in general, even though it has set up regulatory sandboxes for four STO projects. These recommendations would be a game-changer,” Park explained. But a closer look at the recommendations shows that they are not as progressive as they might seem at first glance.
“The fact that the FSC announced the STO rules is good news for cryptocurrencies. But if you dig into the details of these instructions, you will see that they are related to the SD level. For example, they are basically redefining the public blockchain,” Park said.
Let's go
The course of a country's cryptocurrency is often determined, at least temporarily, by a shocking event. In Japan, Mt.Gox and Coincheck hacked into panicked regulators and froze the local crypto community for several years. But these same events also prompted Japan to develop some of the most stringent cryptocurrency regulations in the world. Meanwhile, the US is still reeling from the downfall of FTX, which has left a very visible scar on an industry that already has many detractors in Washington. Due to the recent crackdown by the Securities and Exchange Commission, some crypto companies are now avoiding the US.
The Terra Luna disaster in Korea hasn't been fully dusted off yet, though Kwon's arrest brings the story closer to a conclusion. Several people have told me that since the incident, traditional Korean companies have become more cautious in their cryptocurrency dealings. Before Terra, all major companies joined this push. The investment bank actually invited us to give them a seminar on crypto ETFs or how they can enter the cryptocurrency market. He told me from Hyperithm, but I think the interest is a bit selective now. "Not all companies are more interested in cryptocurrency."
It's hard to say where Korea will end up with cryptocurrency regulation, but its retail market is still showing strength. Korea has played a role in the recent rise of XRP, to name a few: XRP trading volume has soared into the billions on major local exchanges UpBit, Bithumb, and Korbit.
“Whenever there is a bull market, retail traders will come back. I have a friend who asked me with $60,000 worth of bitcoin if he should sell his house to buy bitcoin. Anthony Yoon, managing partner at ROK Capital, said:
Many members of the Terra community have previously encountered other networks. And optimism remains strong in the cryptocurrency industry. “Game companies are gaining momentum right now,” said Sungmo Pak. “And I think the next wave will be entertainment. We are good at games and entertainment, and we have all the conditions for success.”
In other words, a large portion of the Korean market is already heading towards the demise of Terra Luna. It may be a while before we see crypto-friendly regulation, if any exist. But not all Korean dealers and builders think about the past.
“People tend to go to the next hype or the next incident to keep up with the fast Korean trends,” said Erica Kang, founder and CEO of KryptoSeoul, a community building team in Korea.
“When a major, devastating event happens, people are naturally shocked and negatively affected, and they are very important. But then, maybe a few weeks later, they play again.”