REGULATION

South Korea regulation: Expected to ban non-KYC wallets by March next year, are South Koreans getting ready to say goodbye to DeFi?

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South Korea regulation: Expected to ban non-KYC wallets by March next year, are South Koreans getting ready to say goodbye to DeFi?

According to South Korean media reports, cryptocurrency holders in South Korea will only be able to transfer assets between compliant exchanges in the future. Starting next year, transferring cryptocurrencies to wallets such as Metamask without KYC verification will be prohibited.

Saying Goodbye to DeFi?

CryptoQuant CEO Ki Young Ju quoted a report from the South Korean media outlet Daily Economic News on Twitter, stating that the South Korean government will officially ban users from withdrawing funds from cryptocurrency exchanges to non-KYC wallets starting in March 2022.

This move seems to indicate that South Korean cryptocurrency investors will no longer be able to participate in areas such as DeFi, NFTs, and DAOs.

According to reports from June this year, the Financial Services Commission (FSC) of South Korea has requested enhanced monitoring of financial transactions and user identity verification. Exchanges that refuse to cooperate with identity verification procedures or fail to report suspicious activities to the South Korean financial intelligence unit KoFIU may have their banking services denied. By September 24, all industry players were required to submit registration applications.

As a result, the three major exchanges, Bithumb, CoinOne, and Korbit, jointly established a joint venture called "CODE" on August 31 to introduce anti-money laundering solutions.

Daily Economic News pointed out that Coinone CEO Myung-Hoon Cha demonstrated the functionalities of "CODE," where user information can be quickly shared and compared among the aforementioned exchanges within seconds. Both the sender and the recipient must share information, meaning that wallets like Metamask that do not require KYC cannot be listed as recipients.

Furthermore, under the Special Act on Specific Financial Transactions Information, starting from March 25 next year, all exchanges must comply with the anti-money laundering rules of the Financial Action Task Force (FATF), or they will be forced to shut down.

Community Perspectives

Investors who view this news positively believe that most governments will soon implement similar anti-money laundering policies, and the first compliant blockchain will gain a huge advantage in widespread adoption. On the other hand, some point out that countries following this policy will face technological backwardness in the future.

Similar to the previous inclusion of KYC requirements in the U.S. infrastructure bill, which caused a huge uproar, there are certain difficulties in practical implementation. Will South Korean exchange users be able to withdraw funds to international exchanges like FTX or Binance and then transfer them to non-KYC wallets to evade regulations?

Previously, South Korea's plan to impose a 20% tax on cryptocurrency gains in 2022 sparked significant backlash. However, the proposal was ultimately postponed for a year, with the approval passing on December 2, delaying implementation until 2023.

Therefore, looking at the cases of cryptocurrency taxation and infrastructure, there are still variables as to whether South Korea will ban non-KYC wallets in March next year, and whether they have the ability to enforce a complete ban remains uncertain.