The Digital Asset User Protection Foundation, established to facilitate the return of funds frozen in defunct exchanges, will provide a new ally to South Korean cryptocurrency exchange customers.
The self-regulatory Digital Asset Exchange Joint Consultative Group (DAXA) submitted an initiative to establish the foundation to South Korea’s Financial Services Commission (FSC). Activities for the foundation may commence in October.
What became of the crypto exchanges?
Concerns regarding the return of users’ funds held by the nonfunctioning exchanges have arisen, as the FSC reported that 10 of the 22 cryptocurrency exchanges in South Korea have closed, and an additional three have suspended operations.
The security of customers’ funds in the custody of the exchanges is also a concern, as the “private keys to users’ virtual asset wallets are stored at these exchange service providers.” So, as a result
“To make sure that users’ assets are safely protected and properly returned to their owners, it is necessary to have a more systematic management mechanism along with voluntary efforts from those closed down exchange service providers.”
After consulting with the exchanges, the Digital Asset User Protection Foundation will transfer users’ funds and virtual assets to the foundation.
Following this, a bank will be selected to hold users’ cash, and a “KRW-based [South Korean won-based] exchange service provider”—presumably one of the still operational crypto exchanges—will store and administer their virtual assets.
Next, the foundation will contact the users regarding the return process.
The foundation receives support from the government
The operating committee of the Digital Asset User Protection Foundation will consist of representatives from the bank and exchange that will manage the currency and virtual assets, as well as private sector experts and various government agencies. The foundation will receive government support:
“Financial authorities plan to provide relevant support to facilitate consultation […] regarding the matter of transfer of users’ assets.”
If exchanges cease operations in the future, “authorities will provide them with the necessary guidance to transfer the assets of their customers to the foundation.”
South Korea implemented the Virtual Asset User Protection Act on July 19. The act mandates that exchanges maintain customer deposits in banks and maintain customer virtual assets in a separate location.
