Virtual Asset Industry ahead of the Enforcement of the Special Financial Information Act, Domestic VS Overseas 'Temperature Difference'

With the revised Specific Financial Information Act (SFIA) that regulates virtual asset providers (VASP) coming into effect in March, there is a temperature difference between Korean virtual asset services and overseas services.

With the recent increase in Bitcoin (BTC) prices, overseas services are expanding their business, while services that disappear in Korea are appearing one by one.

◆Overseas exchanges that share order books with large exchanges... Domestic halted

The representative SFIA provision that caused the service interruption is “prohibition of sharing order books”. The Enforcement Decree of the SFIA announced last month contained the content that “by alliances with other virtual asset business operators, the act of allowing customers to trade virtual assets with customers of other virtual asset business entities is prohibited”. This means that order book sharing is prohibited.

Until now, some exchanges have shared order books with large overseas exchanges to secure insufficient liquidity. Binance KR and Huobi Korea, which are headquartered overseas, shared an order book with Binance and Huobi, respectively, and Aprobit also shared with Bitfinex.

However, with a ban on order book sharing, Binance KR decided to close its business. This is because the transaction volume is expected to be low if sharing is stopped. Aprobit also announced on the 28th that it will stop sharing the order book with Bitfinex.

Meanwhile, exchanges that share order books with Binance have begun to appear overseas. On the 23rd, Mandala (www.mandala.exchange), an exchange based on Binance Cloud, was launched.

Binance Cloud is a cloud that provides Binance's transaction liquidity and security system, allowing you to create an exchange based on it. The first exchange based on Binance Cloud was Binance KR, but Binance KR was closed and other exchanges started using Binance Cloud.

Accordingly, the possibility of Korean domestic investors escaping overseas has also increased. This is because foreign exchanges provide more liquidity.

Hwang Soon-ho, head of Dounamu External Cooperation Team, who attended a public hearing on the enforcement ordinance of the Special Special Law earlier this month, said, “If (order book) alliance is prohibited, investors will go to foreign exchanges.” I did.

◆De-Fi, which has been formed from overseas, is closed in Korea

The situation is similar for decentralized finance (De-fi) services. Overseas services poured out as a “de-fi boom” broke out throughout the market this year. On the other hand, 'Trinito' of Dunamu DXM, which was the first domestic De-Fi service, has ended.

DXM, a subsidiary of Dunamu, announced on the 23rd that it will end the Trinito service, a virtual asset deposit and loan service. All other functions except withdrawal and redemption have been terminated, and members must withdraw virtual assets by January 29, 2021.

Unlike exchanges, De-Fi services are not directly regulated by the SFIA. Therefore, Trinito also did not have a direct impact on the termination of operations. However, Dunamu explained that Trinito's profitability and service scalability were insufficient.

There is also a regulatory risk behind the difficult service expansion. Overseas De-Fi services have increased their profits by issuing their own tokens and giving token rewards to members. On the other hand, in Korea, it is difficult to take this method, the position of industry insiders.

Yoo Ju-Yong, DXM CSO (Chief Strategy Officer), also at the'Upbit Developers Conference (UDC 2020)' held earlier this month, saying, “There is uncertainty due to regulations in Korea. As the technology is not lagging behind overseas, if regulatory risks are resolved, Various De-Fi services will come out.”

DXM's services such as Upbit's staking service will continue to operate. An official from Dunamu said, “Other services of DXM will remain the same,” and “We are thinking about devising a better service.”