South Korea establishes a foundation to protect and recover users' funds from closed cryptocurrency exchanges, with support from financial authorities.
South Korean cryptocurrency users will soon benefit from a newly formed Digital Asset User Protection Foundation, aimed at facilitating the recovery of funds stuck in defunct exchanges. This initiative comes as part of efforts to ensure the safety and return of users’ funds after several cryptocurrency exchanges in the country shut down operations.
The Digital Asset User Protection Foundation is the brainchild of the Digital Asset Exchange Joint Consultative Group (DAXA), a self-regulatory organization. The initiative has gained approval from the Financial Services Commission (FSC), South Korea’s top financial regulator. The foundation is expected to start its operations in October.
Addressing the Shutdown of Multiple Crypto Exchanges
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According to the FSC, only 12 of South Korea’s 22 cryptocurrency exchanges are currently active, with 10 having shut down and another three suspending their services. This wave of closures has raised concerns about the fate of users’ funds held in non-functioning exchanges, many of which still hold assets in user wallets.
One of the primary concerns is the security of customers’ assets, as private keys to users’ virtual wallets remain in the hands of these exchange service providers. Recognizing the need for better fund management, the FSC emphasized the importance of systematic efforts to ensure users’ funds are safely returned:
“To ensure the secure protection and rightful return of users’ assets, it’s crucial to implement a more structured management system along with voluntary cooperation from defunct exchange providers.”
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How the Foundation Will Work
The Digital Asset User Protection Foundation will collaborate with closed exchanges to recover users’ funds and virtual assets. Once collected, users’ cash will be entrusted to a selected bank, and their digital assets will be stored with a functional South Korean crypto exchange.
Following these steps, the foundation will reach out to users to inform them about the process for retrieving their funds and assets.
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Government Support
The foundation will operate with oversight from a committee composed of representatives from both the chosen bank and crypto exchange, alongside government agencies and private sector experts. The South Korean government has committed to providing support:
“Financial authorities are prepared to offer assistance to facilitate the process of transferring users’ assets.”
For exchanges that may shut down in the future, the government will ensure that users’ funds are safely transferred to the foundation. This initiative aligns with the Virtual Asset User Protection Act, enacted on July 19, which mandates that exchanges separate customer assets from their own and store customer funds in bank accounts.
