South Korea’s Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have launched "emergency" inspections into local crypto exchanges, according to a report by Yonhap citing industry sources.
The move is reportedly linked to the recent collapse of Terra's native TerraUSD (UST) algorithmic stablecoin and its governance token LUNA and aims to ensure better protection for investors.
"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."
TerraUSD and LUNA are developed by Terraform Labs, a Singapore-based company co-founded in 2018 by Do Kwon and Daniel Shin. The company created an algorithmic system designed to keep UST pegged 1:1 to the U.S. dollar through token destruction and incentivizing arbitrage between the UST and LUNA coins.
The system collapsed last week, with UST depegging from the greenback and plunging below $0.15. The price of LUNA, meanwhile, crashed to nearly zero, effectively making the coin useless.
Per Yonhap, as many as 200,000 investors in South Korea are estimated to have invested in TerraUSD and LUNA.
South Korea, Terra, and investor protections
Though Korean financial authorities are watching the crypto market closely following the TerraUSD collapse, they also admit there's not much they can do right away in terms of investor protection, according to a Sunday report by Korea JoongAng Daily.
“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.”
The spokesperson added that financial authorities only have the right to supervise cryptocurrency transactions linked to money laundering.
The latest events surrounding Terra may, however, result in a quicker establishment of South Korea’s “Digital Asset Basic Act,” which is reported to be approved in 2023 and take effect by 2024.
The upcoming legislation is expected to include provisions for a 20% tax on digital assets and insurance for users.