South Korea: Is the Future of Busan’s Digital Asset Exchange Initiative Uncertain?

The intentions of Busan, a city in South Korea, to establish a city-operated, blockchain-based digital assets exchange may be at risk, according to a report published on April 24.

As reported by Naeil Shinmun, the initiative is “exhibiting signs of difficulty” following a significant delay in its official launch.

Busan Digital Exchange Faces Launch Postponement

Plans for Busan’s digital asset exchange have been in development for a while, but they have already encountered several challenges.

The city initially aimed to be the first globally to introduce a cryptocurrency exchange. However, this ambition was heavily reliant on anticipated modifications to central government policies that have not yet occurred.

Since 2018, initial coin offerings (ICOs) have been banned in South Korea. Although successive administrations have pledged to reassess the ICO prohibition, it remains firmly enforced.

This situation, along with notable cryptocurrency scandals, has left the local crypto industry in a state of uncertainty. Busan originally intended to create and subsequently sell the exchange to private sector entities.

After abandoning plans to include traditional cryptoassets, the city revealed it would focus on listing assets such as tokenized real estate, intellectual property rights, carbon emissions rights, and tokenized commodities.

However, it has recently indicated that the exchange will initially concentrate exclusively on tokenized precious metals.

The South Korean won has become the dominant fiat currency for cryptocurrency trading, surpassing the US dollar in Q1. #SouthKorea #Wonhttps://t.co/hTRcUJVErP

— Cryptonews.com (@cryptonews) April 17, 2024

Payment Issues Affecting the Project?

On February 21, Busan City and a firm known as the BDX Consortium entered into a business agreement to “launch and operate a digital asset exchange.”

However, on April 24, Busan city officials confirmed that the consortium did not fulfill a scheduled equity capital payment of $7.3 million.

This situation indicates that the consortium is effectively “failing to meet its commitment to establish a corporation within 60 days of [February’s] agreement,” as noted by the media outlet.

Busan’s Haeundae Beach. (Source: Hajo Schatz [CC BY-SA 2.0])

The agreement’s terms require the consortium to “establish an exchange business called Busan BDX” in the city and complete the payment within the designated timeframe.

Reports indicate that the consortium has applied for corporate registration and appointed a CEO and board of directors. However, the city stated that the payment was not made by the April 22 deadline.

Officials noted that the corporate registration cannot be finalized without the equity payment.

City Asserts This Is Not a Delay

Nevertheless, Busan has reportedly not yet made a decision to terminate its agreement with the consortium, remaining hopeful that the group will secure the necessary funds.

The consortium consists of 11 companies, which have reportedly informed Busan officials that they will settle the payment by the end of May.

The media outlet highlighted that this would likely result in a further postponement of the launch, as the operator would be unable to hire staff, develop a platform, or provide training.

Busan had previously asserted that its exchange would be operational before the conclusion of 2023.

However, the city initiated its public offering process late and has since had to adjust its timeline.

Busan police on Thursday apprehended the operators of an illegal website that provided unlawful gambling services primarily targeting teenagers, managed mostly by teenagers.https://t.co/HPyERzZfh4

— The Korea Herald 코리아헤럴드 (@TheKoreaHerald) April 18, 2024

Busan’s original plans included cryptocurrency trading, as well as “real-world goods and products on blockchain networks.”

An official from the Justice Party’s Busan branch criticized the city authorities’ management of the project, labeling it as “ineffective.”

Conversely, a spokesperson for Busan City expressed a more positive outlook, stating to media reporters:

“Given the numerous restrictions […], we have opted to commence trading [tokenized] precious metals initially and gradually broaden the project’s scope. People should not perceive this as a delay, but rather as a process of trial and error. This is the first instance of [a city] attempting to launch a business of this kind.”

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