FSC probes crypto exchanges for any native tokens

Korea's financial authority launched a probe into virtual asset exchanges to examine whether any were self-listing their own coins.

An electronic device at Bithumb’s customer support center in southern Seoul on Nov. 14 shows the price of Bitcoin nosediving. [NEWS1]

Korea's financial authority launched a probe into virtual asset exchanges to examine whether any were self-listing their own coins.

The probe follows the failed FTX crypto exchange that filed bankruptcy in the United States on Nov. 11 after customers fled the exchange over capitalization fears, and, in bank-run style, withdrawals were halted. The fears were fueled by doubts on whether FTX had sufficient capital.

Domestic crypto exchanges are not allowed to issue their own native tokens, but the Korea Financial Intelligence Unit (KoFIU), part of the Financial Services Commission (FSC), is looking into any possibilities, according to the financial circle Sunday.

“Domestic exchanges are restricted from issuing their own coins,” a spokesperson for the FSC told Yonhap on Sunday. The financial authorities have performed the first round of investigations, but still plan on looking into more specific details because “there are still some doubts related” to the listing of native coins.

Domestic crypto exchanges are barred from listing native coins, or from selling, exchanging or mediating coins listed by people related to the exchange, according to the Act on Reporting and Using Specified Financial Transaction Information.

Flata Exchange, a Daegu-based crypto exchange, is believed to be one of the exchanges being looked into, according to the Yonhap report. Suspicions have risen that Flat, a coin listed in January 2020, may be a native coin.

The financial authorities have confirmed that the five major crypto exchanges, including Upbit and Bithumb, have not issued their own native coins, but the examinations on smaller exchanges have yet to be completed.

Local press reports put the number of Korean investors in FTT at about 6,000 and their holdings at 110,000 units. Korean users generated 6 percent of FTX’s internet traffic in the month of October, second only to Japan, according to Similarweb.

CEOs of the five major crypto exchanges said in a meeting with KoFIU on Nov. 16 that an incident similar to what happened to the FTX is unlikely to happen in Korea because of the act. They added the fundamental factor in the FTX collapse was a result of the “management’s inappropriate use of customers’ assets and the misuse of its native coin FTT.”

In a move to maintain the value and stability of FTT before its fallout, Almada Research, a trading firm co-founded by FTX founder Sam Bankman-Fried, bought and sold the majority of FTT on the exchange, essentially setting the price for the token.

The FTX collapse triggered a slide in cryptocurrency prices that wiped out more than $180 billion of value from digital assets this month.

BY JIN MIN-JI [jin.minji@joongang.co.kr]