[Korea finance act] ③Are MakerDAO and Klaytn also subject to the new act?
[Korea finance act passes...What happens to the market?] ③Are MakerDAO and Klaytn also subject to the new act? The biggest misunderstanding in regards to the financial transactions reform bill that passed the National Assembly March 3 is that it only applies to cryptocurrency exchanges. The reform bill also encompasses all virtual asset service providers (VASP), along with exchanges. It applies to the majority of the companies that transact cryptocurrency from electronic wallets, custody, ICO and DeFi. Companies that meet the qualifications specified under the reform bill will be able to do business in the local market. But those that fail to meet the qualification will struggle to survive. # Does the reform bill only apply to exchanges? The reform bill applies to any virtual asset businesses, including anyone who participates in an virtual asset exchange, anyone who transfers or keeps custody of virtual assets and anyone who mediates the transactions and exchanges. In a nutshell, every company that has anything to do with cryptocurrency is subject to the requirements stipulated in the reform bill. #DeFi likely to be regulated Would decentralized finance, or DeFi, also be subjected to the newly reformed bill? There is a lot of debate regarding this issue. DeFi mostly operate via votes within communities or automated systems based on smart contracts. Until now, it operated outside the legal framework as it did not have a specific managing body. However, the legal community says this is no longer true. During a blockchain seminar held in November, Lawyer Kwon Dan said that while DeFi has argued it isn’t subject to the law by virtue of its decentralized model, many of the DeFi services here in Korea have a managing body. He said that if these service operators profit from the services, the law must be applied. Even foreign companies could be subjected to the local law, including MakerDAO, which provides cryptocurrency loan services. Headquartered in California, MakerDAO issues the stable DAI and MKR tokens that are used for loan commissions. MakerDAO has played an important role in setting up branch offices and in marketing. Kwon said there’s a need to specifically review the sales activities of MakerDAO. He said while MakerDAO does not directly receive interest on DAI, it profits from the rising value of the steady coin. Therefore, if it turns profit from those activities, it will likely be subject to the new reform bill. # What are the conditions to be approved by the authority? The goal of the new reform bill is to manage cryptocurrency-related companies by mandating that they self-report to the authorities. Under what conditions will authorities accept the report? The companies first need to be certified through the Information Security Management System (ISMS). The ISMS evaluates 16 information protection management categories and 64 security measures. The evaluation process takes at least a year and costs more than 100 million won — creating a huge burden for start-ups. Additionally, they need to open bank accounts under real names. This is not easy for start-ups, considering that not even existing cryptocurrency exchanges were able to get real-name bank accounts. For start-ups that are short on finance, starting a cryptocurrency-related business is near impossible. However, there are ways. The reform bill allows the enforcement ordinance to determine the scale that would exempt the ISMS certification or the real-name bank accounts. This is why some of the experts say that in regards to the reform bills, the devil is in the details. If the authority makes the enforcement ordinance difficult, the cryptocurrency industry itself could face crisis. #Industry still has high hopes on the reform bill There are some that worries over the reform bill’s broad suite of regulations, and over the perceived ambiguity, especially until the enforcement mechanisms are hammered out. Still, there are expectations in the market that the reform bill will resolve the market’s anxiety resulting from the absence of law. One blockchain project official said earlier there was confusion in business activities, as there were no specific guidelines.