- Bank of Korea said bankruptcy incidents in the domestic crypto market are unlikely.
- BOK highlights strict regulations and the absence of ICOs as factors reducing the likelihood.
- The report identifies failures in price stabilization and unsustainable business models.
In a recent Crypto Asset Market Vulnerability Evaluation and Implications report, the Bank of Korea (BOK) argued that accidents such as the bankruptcy of trading and loan platforms in the domestic crypto asset market are unlikely to happen in the country.
The BOK noted that the domestic crypto asset ecosystem primarily comprises exchanges focused on simple trading brokerage due to stringent regulations, including the ban on Initial Coin Offerings (ICOs). Consequently, it asserts that the likelihood of experiencing events similar to global crypto market incidents remains low.
Nonetheless, the Korean apex bank has emphasized the need to prepare for potential risks in the crypto market, advising caution and readiness for unforeseen circumstances.
The report captured global incidents such as the sharp decline of algorithmic stablecoin Terra USD (UST), native token LUNA, the bankruptcy of Celsius, a crypto asset lending platform, and FTX, a crypto asset exchange.
Furthermore, the BOK identified failures in price stabilization systems, unsustainable business models relying on continuous capital injection, asset and debt maturity mismatch, liquidity management failure, opaque internal transactions, and diverting customer deposits as causes for these incidents.
The report emphasized that the current regulatory framework in Korea, which prohibits ICOs and requires the separation of customer deposits and own assets, makes it challenging to replicate situations like those experienced by Celsius and FTX.
Notably, coins issued by domestic exchanges abroad cannot be listed on their own exchanges. The BOK concluded that supporting self-issued coins, similar to FTX’s FTT, and manipulating prices through affiliated entities like Alameda is unlikely in the Korean context.
While the risk associated with crypto assets is low, BOK advised establishing a comprehensive response system to prepare for potential threats.
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