South Korea Scrutinizing Exchanges in Wake of Terra’s Collapse

The unprecedented crash of the Terra blockchain network has stirred financial market authorities in South Korea to begin scrutinizing crypto exchanges. According to a report by the Yonhap News Agency, the move is notably aimed at protecting investors from the future collapse of a crypto-related product.

“Last week, financial authorities asked for data on the amount of transactions and investors, and sized up the exchanges’ relevant measures,” a representative for an unnamed South Korean cryptocurrency exchange operator told Yonhap. “I think they did it to draw up measures to minimize the damage to investors in the future.”

While Terraform Labs, the blockchain started founded by Do Kwon and Daniel Shin in 2018 took years to build the Terra ecosystem, their handiwork collapsed in just about a week. The protocol’s native stablecoin, the TerraUSD (UST) lost its 1:1 peg to the United States Dollar while the LUNA coin slumped close to 0 in one of the falls of innovative coins that has almost never been recorded.

With investors losing a massive bunch of their capital within a few days, South Korea’s Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have launched “emergency” inspections into digital currency trading platforms. While there seems to be nothing more that could be done to help UST and LUNA investors, the authorities are reportedly watching the ecosystem closely.

With the Terra ecosystem recording investors globally, as many as 200,000 investors are reported to have invested in the protocol’s tokens in South Korea.

“In regards to the Luna incident, we are monitoring the overall situational changes, but there isn’t a direct measure the government can take at this moment,” a spokesperson for the financial authorities told Yonhap. “There is no ground for the government to intervene because coin transactions are being freely operated by the private sector.”

South Korea Is One Out of Many Watching Crypto Space

The collapse of Terra’s UST and LUNA coins has ignited a new fire and drive that is pushing a number of regulators beyond those from South Korea to rethink regulating the digital currency ecosystem.

Specifically, the United Kingdom has called for more scrutiny of stablecoins as their consideration as an alternative means of payment compared to fiat currencies is growing remarkably. While UST is a unique stablecoin in that it depends on algorithms to help maintain its peg to the Dollar, other stablecoins like the USDT and USDC amongst others have a unique fiat currency reserve base, thus making them relatively safer.

While the Terra blockchain is looking at different options to rise from the ashes, the reality of its UST collapse may accelerate the push by South Korea to introduce its “Digital Asset Basic Act,” which is reported to be approved in 2023 and take effect by 2024. The bill will see a 20% tax imposed on crypto transactions and gains accordingly.