SOUTH KOREA Law and Practice Contributed by: Jongbaek Park, Seungil Hong, Seyeong Im and Eric Jeong, Bae, Kim & Lee LLC
10.11 Virtual Currencies Under the existing legal framework, there is no clear definition of virtual currency. However, in the market it refers to blockchain assets that function as means of payment in general. In terms of virtual assets, the VAUPA defines virtual assets as electronic certificates that have economic value and that can be traded or transferred electroni - cally except for the following: • electronic certificates that cannot be exchanged for money, goods or services, etc or if, as part of information about the certificate, the place and purpose of the use of the certificates are restricted by the issuer; • products obtained through gaming services or products; • electronic prepayment means and electronic cur - rency; and • electronically registered stocks, electronic bills, electronic bills of lading and electronic forms of currency and related services. The majority of blockchain assets are likely to satisfy this definition of virtual assets and there will therefore not be many differences between the treatment of vir - tual assets and blockchain assets. Under the current legal framework, payments using virtual assets, such as stablecoins, are, in practice, not permitted due to gaps and inconsistencies in the existing legislation and regulatory regimes governing virtual assets, electronic financial transactions and for - eign exchange transactions. In particular, with respect to whether virtual assets may be used as funding sources for electronic prepaid payment instruments, such instruments are, under the EFTA, in principle issued, funded and redeemed on the assumption of money or other assets of similarly stable value. Given that virtual assets exhibit significant price volatility, lack the status of legal tender and pose heightened risks from the perspectives of anti-money laundering and consumer protection, they are generally under - stood not to qualify as permissible funding sources. Moreover, if virtual assets were permitted to be used as funding sources, electronic prepaid payment
financial authorities. Virtual asset exchanges in Korea do not therefore offer products such as futures or options based on virtual assets. While traditional secu - rities exchanges recognise particular qualified entities as market makers or liquidity providers, these roles are not recognised in the context of virtual assets. 10.9 Decentralised Finance (DeFi) There is no clear legislation that defines or regulates decentralised finance (DeFi). It therefore remains uncertain whether one can avoid virtual asset-related regulations on the basis that a service qualifies as DeFi. However, the VAUPA and the AML Act apply to entities that conduct virtual asset-related activities as a business. If a particular entity continuously and repeatedly derives profit, such as by receiving a par - ticular form of revenue, including fees, regardless of its structure, that entity may be subject to regulation under these laws, even if the service is operated under the name of DeFi. Conversely, if there is only a protocol in place and no specific entity exercises control or significant influ - ence over its operation nor engages in the continu - ous and repeated pursuit of profit, the protocol or any related entity is unlikely to be subject to regulation under these laws. 10.10 Regulation of Funds The financial supervisory authorities are currently largely against investment in virtual assets by funds established by domestic collective investment busi - ness entities. This is because virtual assets are not considered eligible investment targets under the FSC - MA, and given consideration to these circumstances, funds established onshore do not invest in virtual assets. They are instead known to invest in block - chain assets indirectly by investing in the companies that own the blockchain technology. The FSC specifically prohibits the issuance of spot bitcoin ETFs and the brokerage of overseas spot bit - coin ETFs. This is because these activities could be considered to be inconsistent with the government’s established position and may violate the FSCMA. However, overseas bitcoin futures ETFs are permitted.
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