Key Insights:
- South Korea will launch the Digital Asset User Protection Foundation to protect users’ funds stuck in defunct crypto exchanges.
- 10 out of 22 South Korean cryptocurrency exchanges have closed, raising concerns about users’ assets and security.
- The foundation will work with banks and exchanges to transfer, store, and return users’ funds and digital assets.
South Korean cryptocurrency customers facing losses due to closed exchanges will soon benefit from a new protective measure. The Digital Asset User Protection Foundation is being established to help users recover their assets stuck in defunct exchanges. The initiative is backed by the country’s financial authorities, including the Financial Services Commission (FSC), and spearheaded by the Digital Asset Exchange Joint Consultative Group (DAXA), a self-regulatory body. The foundation is expected to become operational by October.
Cryptocurrency Exchange Shutdowns Affect Users’ Funds
The closure of cryptocurrency exchanges has affected a significant number of South Korean investors. Out of 22 exchanges, 10 have shut down, while three have paused operations, creating concerns over user funds held by these platforms. The FSC emphasized the need to secure users’ funds, noting that private keys to customers’ virtual wallets remain with these exchange service providers. This situation raises security risks and delays in fund returns.
The Digital Asset User Protection Foundation will be tasked with managing the safe return of users’ funds. Besides, it will consult with the defunct exchanges to transfer users’ virtual assets and money to the foundation. After this, a designated bank will be chosen to hold users’ cash, while a still-operational cryptocurrency exchange will store and oversee their digital assets.
Systematic Asset Management and Government Support
To ensure smooth operations, the foundation will include an operating committee with representatives from both the bank and the selected exchange. They will work closely with government bodies and private sector experts to oversee the process of fund and asset recovery. Additionally, the foundation will provide timely updates to users about the process of returning their funds.
The South Korean government has pledged its support for the foundation. It will assist in consultations regarding the transfer of users’ funds and assets. Furthermore, financial authorities will guide future exchanges that face closure, ensuring they follow procedures to transfer customer assets to the foundation promptly.
This initiative reflects the government’s increasing involvement in ensuring the safety of digital assets amid the volatility and uncertainty of cryptocurrency markets. The establishment of the Digital Asset User Protection Foundation offers a safeguard for users’ investments, particularly in the event of exchange closures or service suspensions.
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