Complying with the rules puts South Korea ahead of the curve for regulating virtual assets, but may be harming the domestic industry with overbearing transfer restrictions between exchanges.
South Korean crypto exchanges have reached the government-mandated deadline to come into compliance with the so-called Travel Rule, but not all industry players are pleased with the measure.
Starting today, Korean exchanges will flag any crypto transfers worth more than roughly $821. Transfers higher than that value will be restricted to user-verified wallets and a select number of exchanges that have adopted their anti-money laundering system.
The Travel Rule is a set of guidelines issued by the international financial watchdog Financial Action Task Force (FATF) designed to help authorities track the movement of virtual assets between virtual asset service providers (VASP) such as crypto exchanges or digital asset issuers.
A source from a local centralized exchange today praised the regulatory measure as a step forward for the country’s crypto industry, telling Cointelegraph that:
“The industry is now taking a step towards institutional acceptance and will work harder for mass adoption.”
There may be a problem for South Korea’s traders, who racked up $45.8 billion in crypto market value in 2021, in figuring out which exchanges they can transfer funds to and from. Among the big four exchanges (Upbit, Bithumb, Coinone, and Korbit), there are two Travel Rule systems. Each system functions slightly differently and requires international exchanges to follow its guidelines. If those guidelines are not followed, transfers will not be allowed.
According to the CEO of South Korea-based crypto VC Hashed, Simon Kim, these differences are likely to cause confusion and frustration among domestic traders. He feels that the Korean crypto community sees the mandate as “clearly over-regulation,” as he emphasized to Cointelegraph that:
“In a state where the infrastructure was not prepared, a regulatory body with low understanding was forced to push forward. It is expected that revisions will follow to an appropriate level with criticism from the Korean community.”
The Hashed crypto and Web3 portfolio includes blockchain ecosystems Klaytn and Ethereum, NFT game Axie Infinity, and decentralized exchange dYdX.
Upbit is the largest exchange in the country with over 78.3% of the exchange market share according to local analyst Jun Hyuk Ahn. It has adopted its home-grown Verify VASP program. As of today, Upbit allows transfers to and from its affiliates in Singapore, Indonesia, and Thailand, Bblock, Gopax, Cashierest, Flat Thai Exchange, Aphrobit, Binance, Bybit, Okcoin, Crypto.com, Coinbase, BITFRONT, Bittrex, Bitbank.cc, Gate.io, Kraken, BitMEX, FTX US, and HARU Invest.
Meanwhile Bithumb, Korbit, and Coinone all have adopted the CODE system. This allows transfers between Coinbase, Kraken, Coincheck, bitFlyer, Bybit, Gemini, Coinlist Pro, Phemex, Bitbank, Line bitmax, Bitfront, FTX, Binance.
Domestic transfers are blocked until April 8.
The rules may hit decentralized finance (DeFi) traders hardest as they rely on personal wallets to make trades. Among all exchanges, no transfers to or from private wallets will be allowed unless the user verifies the address in-person.