“It’s dead. The retail side has diminished dramatically. The exchanges have been suffering so much,” said Erica Kang, founder of community KryptoSeoul. She says traders aren’t cashing out because they can’t afford the losses. “I can’t even mention price with retail investors because they are so angry about how much money they lost.”
On the markets, the Korean won, which once made up 35-40% of Ethereum trades, now makes up about 0.3% of total volume. The Korean fiat currency is now used in just 2% of Bitcoin trades, making it a distant fourth behind the US dollar, yen and euro.
Kang believes high demand in Korea for altcoins that subsequently lost money has soured Korean investors’ taste for crypto in general. Activity has plummeted since regulations tightened to tamp down arbitrage and fraud and the global crypto winter took hold. “The Korean public’s mind has left crypto since the government banned ICOs [in September 2017],” said Ethan Kim, a partner at blockchain accelerator Hashed.
South Korean exchanges were already struggling when the major exchange Upbit was hit with a hot-wallet theft of USD $49 million in Ether in late November. Even that hardly moved the price needle, though transaction volumes of ether have stagnated. Upbit’s Bitcoin prices even rose after the hack. As Upbit put its accounts on freeze, banning users from cashing in or out, a surge of trade hit over a dozen of the exchange’s altcoins such as Decentraland (MANA), whose price more than doubled after the incident.
“After the hack, I thought the Bitcoin price would go down, but it didn’t,” said Joony Koo, a business development partner at Seoul-based digital asset services company Block Crafters. “Sentiment-wise, I don’t think there was a big change — it was already pretty low anyway.”
BTC/KRW on Upbit, illustrating prices since the hack.
ETH/KRW on Upbit.
MANA/KRW on Upbit.
But the outlook isn’t all dark. Blockchain project investors in Korea see an upside to the quieter environment. They say they’ve expanded their scope overseas, but still see pockets of potential for local development, especially in gaming and decentralized finance.
“When the prices go down, projects are more legitimate,” Kim said. Projects that were solely interested in hyping up token prices have left the industry. “Founders who have a more proven track record are jumping into the crypto scene and developing their projects very seriously. I think this is a good signal for the ecosystem.”
Koo says his company now helps tech startups integrate blockchain only when necessary, rather than forcing solutions to use the tech. The main difference for project investors who were burned in the ICO bust, he added, is that now they’re overly cautious about staking their money in cryptocurrency fundraises, which are outlawed in Korea. Instead, blockchain projects raise equity or private token sales, which are less volatile.
Hashed, a prominent local blockchain accelerator, has focused its latest investments in the gaming industry, where Kim says newer companies are “willing to take the risk” on adopting new business models. Its portfolio companies Crypto Sword & Magic, EOS Racing and The Sandbox are using blockchain to allow users to trade currencies and items outside of the game, giving players more freedom to transact with others, according to Kim.
Koo, meanwhile, sees Korean traders jumping into the burgeoning decentralized finance movement, where projects particularly in China, Korea and Japan like HashQuark, Haru Bank and HashPort are taking off by putting traditional financial tools on a public blockchain. DeFi gives individual investors who are holding on to their coins an opportunity to gain returns. In Korea, local exchange Hanbitco offers 8-12% interest investments that are said to sell out quickly.
Projects that made headlines in the bull run like MediBloc and ICON, which offer medical data hashing and a blockchain network, respectively, are working quietly and steadily through the lull. ICON’s blockchain Loop raised 10 billion won ($8.4 million) in October to expand commercialization of its decentralized ID service. Larger companies are also enthusiastic. In October, Korean mobile carriers, smartphone makers and financial firms such as SK Telecom, Samsung Electronics and Shinhan Bank joined hands to create a blockchain-powered decentralized ID service, while Shinhan Card introduced a blockchain-powered payment system for its users.
GroundX, a blockchain subsidiary of Kakao Corp., maker of Korea’s main messenger app, is developing its own blockchain and partnering with major local banks and exchanges. The blockchain, Klaytn, which recently added Binance to its governance council, handles 500,000-700,000 transactions per day through its initial partners despite not yet being fully deployed. It has racked up 3 million account addresses since launching its mainnet in June, according to Kim (Hashed advises and invests in Klaytn).
Terra, run by Korean ecommerce giant TMON’s founder Daniel Shin, provides an algorithm-backed stablecoin that can be used for 10% discounted purchases on the TMON site. The incentive seems to be working: Its decentralized application CHAI handled $54 million in transactions in its first four months.
Although some of these firms have faced some criticism, they have reached significant milestones. But there is a lot of pressure on these high-profile projects to succeed as they are the global faces of the Korean industry.
Government’s blockchain boost
Korea has outlawed ICOs and put strict guardrails on cryptocurrency trading like limiting the number of accounts a user can have, but the government is enthusiastically promoting blockchain technology as part of its “Fourth Industrial Revolution” push for a new economic growth pillar. Kim sees newly tightened regulations on cryptocurrency exchanges as a good sign in pushing for their legitimacy.
The Korean government recently committed to spending 450 billion won ($380 million) from 2021 to 2026 for blockchain research and development, and regional governments in Busan City and Jeju Island have set up blockchain sandboxes to allow for experimentation under eased regulations.
Koo says the outline of the sandbox regulations is still quite vague, but “it’s still a step forward. The sentiment is that they’re trying to build a less regulated case where companies can experiment with different things,” he said.