South Korea’s crypto comeback leaves Terra-Luna in the dust
South Korea’s crypto comeback leaves Terra-Luna in the dust
Korean Blockchain Week shows signs traders are bullish once again and regulation is inching towards clarity
This week’s ATR Original story comes from South Korea, where Elaine Ramirez looks at how the country’s crypto industry is finally rebounded after the 2022 collapse of Terra-Luna wiped out tens of billions in assets and started an industry decline.
We’ll be back on Monday with another news recap—have a great rest of the week!
If you walk around a Web3 conference during a bear market, you can almost see the trauma on people's faces. The mood was especially grim last year in South Korea in the aftermath of the 2022 Terra-Luna collapse, which triggered a global market downfall that hit particularly hard among its fiercely loyal Korean home turf.
Terra-Luna lost an estimated minimum of $40 billion in assets when it crashed in 2022—its collapse triggered similar capitulations for investment fund Three Arrows Capital and trading exchange FTX. Combined, these wipe-outs put the crypto market into a winter period of low prices and negative market sentiment that caused job losses and an industry recession
The impact lingered, but now new market cycles have wiped memories clean, and regulators seem to be pressing forward for a safer ecosystem, too. Two years after the Terra-Luna shakeup, Korea Blockchain Week, a major conference held in Seoul this month, was notably vibrant, with a mixed crowd of people who'd probably never set foot in such an event lining the halls.
Terra-Luna may now be in South Korea’s rearview mirror.
Rebounding and resurgent
The country's infamous retail frenzy has rebounded, with local trade volume hitting a two-year peak in early March. A phenomenon I recognised in 2017, speculative trading behaviour, limited investment options and a lack of capital gains tax on crypto have brewed a perfect storm for retail investment demand across age groups.
“Friends or acquaintances… have a much less glamorous view of crypto now,” said Jason Cho, head of business development at Korean crypto custodian BDACS. “At the same time, you look at the numbers… there's still a huge amount of interest.”
There are about 6.5 million accounts on Korean exchanges, with the country's Upbit a top-five global exchange for spot trading. Crypto trading pairs in Korean won surpassed USD earlier this year, owing to US uncertainty and regulation dampening one side and Korean speculation across investment categories tipping the scale, notes Alex Shin, an angel investor and founder of research boutique ShinLabs.
The high concentration of Korean retail interest has been drawing the attention of global projects. “A considerable amount of the trading volumes happens to be on one exchange, and if you're trying to optimise marketing dollars, do you want to spread them across 100 countries on Binance, or just want to go after one: Korea?” said Shin, who advises prominent decentralised trading platform Uniswap.
That was easily demonstrated on the floor at Korea Blockchain Week, where over 90% of exhibitors came from overseas, according to Brian Kang, co-founder of FactBlock, the event’s organiser. Meanwhile, he said around 7 in 10 paid attendees were local, many from outside of the industry. Exhibit halls flooded with ‘normies’ queuing to play Web3 games for prizes.
"A lot of Korean retail [traders] are still pretty onboarded. You don't have to be a crypto native to be interested," said Christy Choi, co-founder of Web3 game studio Spacebar and founding director of Binance Labs. "It's becoming much more important for all these projects in and out of Korea to grab the attention of the Korean community."
Attracting global attention
While the retail market has the limelight, global projects like Aptos, Solana, Telegram-affiliated TON, NEAR and Sui have been growing a presence in South Korea to set up tech support as well as attract developers, says Baek Kyoum Kim, general partner of Hashed, a local venture accelerator and investor. “Rather than the Korean market becoming an isolated, regional market, which it was initially, [it has] become more of a global hub where there's a concentrated amount of talent that can work on a global scale.”
“Rather than the Korean market becoming an isolated, regional market, which it was initially, [it has] become more of a global hub where there's a concentrated amount of talent that can work on a global scale,” Baek Kyoum Kim, general partner, Hashed
One Terra-Luna spillover effect was a breadth of developers building on Cosmos, the blockchain that hosted the ill-fated project, Choi of Spacebar noted. “Through the ashes, a lot of companies were also born.”
And those teams are more globally minded than a decade ago. “The general playbook was to win the local market then expand to the global market. That’s still a general trend for non-crypto startups in Korea. I think a lot of the Korean founders or teams are very aware that localising… doesn’t work in Web3,” Choi said.
Since the latest bear market, Korean developers have shown up in droves to developer conferences like ETH Denver—an event series from the Ethereum Foundation—Kim of Hashed says. “[There’s a] growing amount of people that are noticing opportunities overseas and trying to become part of those mainstream communities.” At the same time, local gaming giants like Nexon, Netmarble and Com2us have paved the way on the corporate side, deploying Web3 games with in-house teams.
Still, capital, regulation and other factors are keeping global-facing entrepreneurs from setting up in Korea. Local venture capitalists say real estate uncertainties and a reduced government startup funding budget have dried up liquidity for entrepreneurship across the board.
SY Lee, cofounder of a16z-backed IP blockchain Story Protocol, says Korea’s strong content industry makes the market a priority, but ultimately he decided to build in Silicon Valley. He built his previous company, Radish, with a team split between Silicon Valley and Korea, and exited it to Korean tech giant Kakao. Now only one in 40-plus employees at his new company is Korea-based.
“As an IP blockchain it makes a lot of sense to be here,” he says, but adds many entrepreneurs like him seek better conditions for funding, expertise and legislative clarity. “There’s still no clear regulation in Korea for Web3 entrepreneurs.”
Does money flow translate into a healthy ecosystem? Shin of ShinLabs says no, due to the local Web3 ecosystem’s lack of fundamentals. "You launch a token… you raise from established VCs that in some ways are retail validation, but we're not using these products," he said. “Unfortunately, very speculative retail markets just end up becoming price discovery and liquidity for Western protocols.”
Regulation and institutions
Regulation has long stifled local project development, so Web3-oriented companies that want to launch a token head to Singapore, Dubai and other jurisdictions, said Cho of BDACS.
At least, the fallouts from Terra and FTX, the global crypto exchange giant that collapsed months later, were catalysts for clarity and protection for retail investors. The Virtual Asset User Protection Act took effect in July, setting capital management transparency and security guardrails on crypto exchanges. Policymakers are also motivated by growing institutional interest to take crypto regulation seriously, Cho said.
“It's a good start for them to create these types of guidelines... to show to both regulators and the general public that we have created a secure ecosystem that will provide transparency for the South Korean market, not just for the retail side, but also for institutions,” Cho said. But he added institutions still need more detailed regulation to directly participate.
Local banking and investment players are paving the way for indirect institutional participation. KODA—a joint venture custody solution between local KB Bank and Hashed—manages $13 billion in assets under custody to help public and private institutions on and offramp into crypto, according to Hashed’s Kim.
KODA, a joint venture custody solution between local KB Bank and Hashed, manages $13 billion in assets
He hopes regulatory clarity will shape Korea into a financial hub like Hong Kong and Singapore, beyond being a retail or developer market for the Web3 space. He also believes Korea's strong creative industry in movies, music and games will start to intersect more with Web3, citing Story Protocol's efforts in putting IP on chain.
Similarly, Choi of Spacebar believes the current Web3 narrative is shifting from infrastructure projects to consumer-facing applications, and that’s where Korean projects can thrive. "I think that's something Korean teams are definitely more adept at, compared to building out new, faster or more secure chains, for example. So I think we have a leg up in that game for sure."
$40 billion is a deep void to fill, but there are signs that shoots are appearing in promising areas that could make Web3 more robust and viable in the long-term, albeit less flamboyant, in the Korean market.
Yohan Yun contributed research
Elaine Ramirez is a media entrepreneur who reported on South Korean tech for Forbes Asia and other outlets and recently led audience development at crypto news service CoinDesk. You can connect with her on LinkedIn.
If you’re a freelancer reporter or want to contribute to Asia Tech Review, contact contributors@asiatechreview.com
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