South Korea is rolling out stringent crypto regulations to stabilise its booming digital asset market before welcoming institutional investors. The Financial Services Commission (FSC) finalised sweeping rules on May 20, targeting nonprofits, exchanges, and risky tokens. With 30% of the population actively trading crypto, the reforms aim to balance innovation with security.
Nonprofits Face Rigorous Donation Rules
Nonprofits can now sell donated cryptocurrencies but only under strict conditions. Organisations must prove five years of audited financial history and form internal committees to assess each donation’s legitimacy. All crypto gifts must flow through verified Korean won accounts, with banks and exchanges sharing anti-money laundering (AML) duties. Additionally, nonprofits must liquidate donated tokens immediately if listed on three major domestic exchanges. This prevents hoarding and reduces price manipulation risks. “These steps ensure transparency,” an FSC spokesperson noted, though critics argue smaller charities may struggle to comply.
Exchanges Hit With Sales Caps and Bans
Crypto exchanges face tighter profit limits under the updated framework. While allowed to convert user fees into cash for operational costs, daily sales cannot exceed 10% of planned amounts. Platforms can only sell the top 20 tokens by market cap, selected from five won-based exchanges. Crucially, exchanges cannot sell tokens on their own platforms, eliminating conflicts of interest. “This stops exchanges from artificially inflating prices,” said a Seoul-based analyst. Furthermore, zombie tokens, those with low liquidity and memecoins face delisting if they fail new engagement benchmarks.
Stricter Listings
To combat wild price swings, the FSC now mandates minimum circulating supplies for new tokens. Exchanges must also temporarily restrict market orders post-listing, cooling speculative frenzies. For instance, tokens lacking clear utility or community backing will undergo heightened scrutiny. The rules respond to past scandals where thinly traded assets crashed overnight. “Investors deserve stable markets,” the FSC stated. However, some traders fear reduced opportunities for high-risk, high-reward bets.
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Politicians Push Won-Backed Stablecoin and ETFs
Amid regulatory shifts, political leaders are advocating crypto-friendly reforms. Democratic Party head Lee Jae-myung recently proposed a Korean won-pegged stablecoin to rival USDt and USDC. “This could curb capital flight and boost financial sovereignty,” Lee argued at a policy forum. His rival, Kim Moon-soo of the ruling People Power Party, backs legalising spot crypto ETFs mirroring U.S. moves. Bipartisan support suggests reforms could accelerate, though experts warn stablecoins require robust reserves to avoid collapses like Terra-LUNA’s 2022 crash.
Institutional Entry Begins With Nonprofits in 2025
Starting June 2025, South Korea will phase in institutional crypto access. Nonprofits and charities gain first access in Q2, followed by listed firms and professional investors in Q3. Over 3,500 institutions, including 2,500 public companies, are expected to participate. The FSC will also scrap its “one-exchange-one-bank” rule, encouraging competitive partnerships. Analysts predict this could double market liquidity, narrowing the “Kimchi Premium,” where Korean crypto prices often exceed global averages due to high demand.
Innovation and Investor Safety
With 15.6 million active traders, South Korea’s crypto market is too large to ignore. The FSC’s rules align with global standards, enhancing credibility to attract foreign capital. Still, challenges persist: memecoin fans lament stifled creativity, while regulators prioritise shielding retail investors. “These measures aren’t about stifling growth,” the FSC emphasised. “They’re about ensuring sustainable growth.” As institutions prepare to enter, the world watches whether South Korea can become a model for regulated crypto expansion.
Written By Fazal Ul Vahab C H
