Bitrabo Editorial
South Korea’s Financial Services Commission (FSC) has introduced a new regulatory framework for non-fungible tokens (NFTs) in anticipation of the forthcoming implementation of the Virtual Asset User Protection Act starting July 19th, 2024. The objective is to provide a clear structure for the growing NFT market, protect investors, and encourage responsible innovation.
The Focus on Fungibility
The FSC’s strategy revolves around fungibility, which refers to an NFT’s ability to be exchanged for an identical one. NFTs that are mass-produced, divisible, and primarily used as a form of payment will be considered virtual assets and subjected to regulations similar to cryptocurrencies.
In an intriguing discussion, Jeon Yo-seop, the mastermind behind financial innovation at the FSC, hinted at a fascinating concept of a digital vault overflowing with 1 million NFTs functioning not only as collectibles but as a form of currency in itself. Despite this vision, the FSC emphasized the need to analyze each NFT collection uniquely, without a one-size-fits-all classification as crypto.
Diverse Regulations for NFTs
The FSC acknowledges the various uses of NFTs. NFTs that are unique, indivisible, and have minimal monetary value, such as those for concert tickets or digital certificates, may be labeled as “general NFTs” and may be exempt from stringent regulations. Additionally, NFTs could be recognized as securities if they possess certain characteristics outlined in South Korea’s Capital Markets Act, showcasing a nuanced perspective that adapts regulations to the changing landscape of NFTs.
Importance of Compliance for Businesses
NFT businesses in South Korea must thoroughly review the FSC’s guidelines to ascertain if their offerings classify as virtual assets. It is imperative for companies dealing with such NFTs to adhere to the Specific Financial Information Act, which oversees the trade, transfer, storage, and brokerage of virtual assets.
Non-compliance with these regulations could lead to significant fines or even legal repercussions. Recognizing the potential challenges for businesses, the FSC has committed to providing consultation services to help navigate the new regulatory environment. This includes practical examples and case studies to aid businesses in confidently categorizing their NFTs.
Growth Opportunities in South Korea’s NFT Market
The NFT market in South Korea is poised for substantial growth, with the NFT spend value expected to surge from $938 million in 2022 to $4 billion by 2028, indicating a compound annual growth rate (CAGR) of 34%.
The country has witnessed a surge in NFT adoption, with the number of NFT owners increasing from 10,000 in 2020 to 760,000 in 2021, projected to hit 970,000 in 2024 and 1.02 million by 2025, according to recent data.
Featured image from Getty Images, chart from TradingView