As per the latest reports, South Korea’s Financial Services Commission has deemed cryptocurrencies as a “high-risk asset”, and this could have dire consequences on the country’s DeFi (decentralized finance) industry.
Currently, financial regulators of South Korea are polishing the Online Investment-Linked Finance Act a.k.a P2P Law, and it is scheduled to be made operational by the third quarter of this year. This essentially means that, once the law is in place, South Koreans would not be able to use cryptocurrencies as collateral for loans and investment products. Reports suggest that this move is a part of South Korea’s initiative to better regulate P2P platforms across the country.
Future of DeFi Platforms in South Korea
The finer intricacies of the P2P law is yet to be disclosed. However, the law will definitely curb the operations of P2P platforms in South Korea. More interestingly, once the amended law takes over, no investment products or DeFi platforms will not be allowed to operate in South Korea, even if they are licensed under the Financial Services Commission.
Having said that, there is no provision in the bill as yet, in regard to the usage of foreign DeFi platforms like MakerDAO, BlockFi, and Dharma. Hence, it is unlikely that a ban would be imposed on foreign applications as well. Additionally, the law also does not include crypto-based P2P platforms of South Korea under its jurisdiction.
In a statement, the FSC clarified, “We are prohibiting linked investment products that use crypto assets and derivatives as collateral, which are difficult for investors to understand the risks of.”
The road ahead
Many local DeFi platforms of South Korea have argued that they accept crypto assets as collateral, and hence does not come under the realms of the soon to be updated P2P law.
As of now, South Korean DeFi platforms will continue operations and work closely with the FSC, until the law is fully rolled out more clearly later this year.