South Korea’s Regulatory Vacuum Pushes Crypto Innovation Abroad
TREE NEWS reports: South Korean digital asset scholars are calling on regulators to establish clear token issuance rules, warning that the country’s longstanding regulatory ambiguity has driven local crypto projects to issue tokens and base operations overseas. The Digital Asset eXchange Alliance of Korea (DAXA) published its 2026 Digital Asset Policy Compendium, highlighting that since the government’s 2017 initial coin offering (ICO) ban guidance, the absence of clear token issuance rules has forced domestic projects to seek friendlier jurisdictions.
The Cost of Regulatory Ambiguity
South Korea was once one of the world’s most vibrant crypto markets, with a highly active retail investor base and a thriving ecosystem of blockchain startups. However, the 2017 ICO ban created a policy vacuum that persists today. While the Virtual Asset User Protection Act took effect in 2024, it primarily focuses on investor protection and exchange conduct rather than providing a comprehensive framework for token issuance and classification.
This gap has had tangible consequences:
- Korean blockchain projects increasingly incorporate in Singapore, Switzerland, or the United Arab Emirates to issue tokens
- Domestic exchanges face limited listings of Korean-origin tokens, reducing market diversity
- Tax revenue and high-value jobs migrate offshore alongside these projects
- Korean investors gain exposure to foreign projects rather than supporting local innovation
DAXA’s Policy Recommendations
DAXA’s policy compendium is expected to serve as a blueprint for the next phase of Korean crypto regulation. Key areas of focus likely include establishing a clear legal definition of digital assets, creating a tiered issuance framework that distinguishes between security-like and utility tokens, and providing a pathway for projects to issue tokens domestically under regulatory supervision.
The scholars’ recommendations also touch on the need to align with global regulatory trends, particularly as jurisdictions like the European Union implement the Markets in Crypto-Assets (MiCA) framework and as the United States moves toward more structured digital asset oversight.
Forward-Looking Perspective
South Korea’s regulatory evolution represents a critical test case for how advanced economies balance innovation with investor protection. If DAXA’s recommendations translate into legislation, the country could reverse the outflow of blockchain talent and capital, positioning itself as a competitive hub in the global crypto economy. Conversely, continued ambiguity risks cementing Korea’s status as a market where trading thrives but building does not. The coming year will be pivotal in determining which path Korea takes.
