What is the Digital Asset Protection Foundation?
It was established by DAXA in October 2024 to support the return of assets to users of exchanges that have shut down.
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Finance / Cryptocurrency
South Korean Crypto Shutdowns Freeze Millions in User Assets
Fifteen virtual asset service providers in South Korea have ceased operations, resulting in 22.114 billion won ($15.8 million) in unreturned user assets. Despite the establishment of the Digital Asset Protection Foundation, the actual asset...
Key Insights
- **Unreturned Assets:** 22.114 billion won ($15.8 million) in user assets remain unreturned from 15 South Korean crypto firms that have shut down.
- **Low Recovery Rate:** The Digital Asset Protection Foundation has only managed to return 74.52 million won ($53,000), approximately 0.3% of the total unreturned assets.
- **Regulatory Gaps:** Current laws do not mandate virtual asset service providers to transfer user assets to the Foundation upon shutdown, limiting enforcement power.
- **Need for Stronger Guidance:** Calls are growing for the Foundation to strengthen its guidance system and for financial authorities to accelerate legislative discussions to mandate asset transfers.
In-Depth Analysis
As of May 4, 2026, 15 domestic virtual asset service providers in South Korea had ceased operations, according to data received by lawmaker Kang Min-kuk from the Financial Supervisory Service. Among these, 10 companies had confirmed figures for user numbers and assets held, totaling 1,949,742 users and 22.114 billion won ($15.8 million) in unreturned cash deposits and virtual assets.
The Digital Asset Protection Foundation, established in October 2024 by DAXA, was intended to support the return of assets to users of closed exchanges. However, only five of the 15 operators had returned assets, with 174 users applying for repayment and 74.52 million won ($53,000) returned to 131 of them, representing approximately 0.3% of all unreturned assets.
Kang Min-kuk has pointed out that the absence of a mandatory asset transfer requirement and insufficient guidance from the Foundation contribute to the inadequate protection of user assets. He emphasized the need for financial authorities to accelerate follow-up legislative discussions to mandate asset transfers and strengthen the Foundation's guidance system to reduce user losses.
**How to Prepare:**
1. **Diversify Your Holdings:** Do not keep all your assets on a single exchange. 2. **Stay Informed:** Keep up-to-date with regulatory changes and announcements. 3. **Understand the Risks:** Be aware of the risks associated with smaller or less established exchanges.
**Who This Affects Most:**
This situation primarily affects South Korean cryptocurrency investors who used the services of the now-defunct virtual asset service providers. Those with significant holdings on these platforms are at the highest risk of financial loss.
FAQ
Why is the asset recovery rate so low?
Current laws do not require virtual asset service providers to transfer user assets to the Foundation upon shutdown.
What actions are being proposed to improve the situation?
Lawmakers are calling for mandatory asset transfers and stronger guidance from the Foundation.
Takeaways
- Millions of dollars in user assets are frozen due to the shutdown of South Korean crypto firms.
- The current asset recovery rate is very low, highlighting the need for better protection mechanisms.
- Regulatory changes are being discussed to mandate asset transfers and improve the guidance provided to users.
Discussion
Do you think these regulatory changes will be enough to protect crypto investors in South Korea? Let us know your thoughts!
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Sources
Disclaimer
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