The unexpected collapse of the algorithmic stablecoin TerraUSD (UST) and its sister cryptocurrency, LUNA, has regulators all over the world very worried. The same is also applicable in South Korea and its lawmakers have also decided to take the matter into their hands. The primary purpose behind it is to come up with regulations that can provide protections to people when they are making customer investments.
The Terra fiasco
The Terra blockchain created a payment system using stablecoins pegged to fiat currency. The purpose of creating it was to ensure stability in the value of the coins available. Therefore, two stablecoins were introduced by Terra and they were named UST and LUNA and they were meant to give the public the opportunity to invest their funds.
As opposed to other crypto networks and blockchains, Terra has a different and unique payment process. It involves purchasing the two stablecoins i.e. LUNA and UST to ensure that if the latter fails, the former can back it up. Terra had a good reputation and was considered a trusted blockchain. Hence, when the stablecoin imploded, it took the entire crypto market by surprise.
Investors had begun to sell their UST and LUNA holdings in the month of May and this saw the prices of these stablecoins crash to zero.
South Korea introducing regulations
It should be noted that cryptocurrencies are digital currencies that are not regulated and not managed by a central authority. There has been talk of regulating the market and many countries are looking into it, but after the LUNA and TerraUSD’s crash, it has picked up steam. The Japanese government is one of them and now the South Korean government has also decided to follow suit.
The South Korean lawmakers have said that they are going to introduce a ‘self-regulatory’ system in order to prevent any such incidents from happening again. The officials in the country have come to an agreement regarding the regulation of digital assets that can be found in the crypto space. The policymakers prefer a ‘self-regulatory’ system that can help in mitigating the consequences of projects like Terra.
The banking regulators in South Korea have informed all crypto exchanges to come up with listing and delisting tokens on their platforms. By mandating exchanges to have these rules, the South Korean regulators want to protect the investors from the risks that are an inherent element of the blockchain-based economy.
Mr. Yun Chang-Hyun, the head of the Virtual Asset Committee of the ruling party, called for a meeting on June 13th. The purpose of the meeting was to bring the different South Korean exchanges on board and to get them to sign a draft of the regulations or guidelines. These include exchanges like Korbit, Bithumb, Coinone, Upbit and Gopax. Doing so can come in handy for preventing insider trading, money laundering and other illicit activities and ensuring transparency.
Japan has also introduced a bill aimed at regulating stablecoins in order to protect investors and the UK is also making amendments for the same.