South Korean customers of cryptocurrency exchanges will have a new ally in the Digital Asset User Protection Foundation, which is being set up to ease the return of funds stuck in defunct exchanges.
South Korea’s Financial Services Commission (FSC) approved an initiative by the self-regulatory Digital Asset Exchange Joint Consultative Group (DAXA) to create the foundation. The foundation may begin activities in October.
Where did all the crypto exchanges go?
The FSC stated that 10 of the 22 cryptocurrency exchanges in South Korea have closed and another three have suspended operations, leading to concerns about the return of users’ funds held by the nonfunctioning exchanges.
The safety of customers’ funds in the hands of the exchanges is also a concern as the “private keys to users’ virtual asset wallets are stored at these exchange service providers.” Therefore:
“To make sure that users’ assets are safely protected and properly returned to their owners, it is necessary to have a more systematic management mechanism along with voluntary efforts from those closed down exchange service providers.”
The Digital Asset User Protection Foundation will consult with the exchanges, after which users’ funds and virtual assets will be transferred to the foundation. From there, a bank will be chosen to hold users’ cash, and a “KRW-based [South Korean won-based] exchange service provider” — presumably one of the still functional crypto exchanges — will store and manage their virtual assets.
The foundation will then contact the users to inform them of the return process.
Related: CEO of defunct yield protocol says user deposits weren’t ‘principal protected’
Government backs up the foundation
The Digital Asset User Protection Foundation will have an operating committee made up of representatives of the bank and exchange that will handle the cash and virtual assets, several government agencies and private sector experts. The government will back the foundation:
“Financial authorities plan to provide relevant support to facilitate consultation […] regarding the matter of transfer of users’ assets.”
For exchanges that cease operations in the future, “authorities will guide them accordingly to transfer their customers’ assets to the foundation.”
Source: FSC Korea
South Korea enacted the Virtual Asset User Protection Act on July 19. Among the requirements of the act are that exchanges keep customer deposits in banks and keep customer virtual assets separate from their own.
Magazine: Deposit risk: What do crypto exchanges really do with your money?