Hong Kong gearing up to give crypto derivatives the go-ahead

Dunamu reports Q3 slump amid interest rate hikes and economic slowdownDunamu, the operator of South Korea’s largest cryptocurrency exchange Upbit, posted a lackluster performance in this year’s Q3 due to a decrease in trading volume caused by ongoing interest rate hikes and an economic downturn.Photo by Алекс Арцибашев on UnsplashLagging performanceAccording to the Financial Supervisory Service (FSS), Dunamu’s consolidated operating revenue in Q3 was KRW 193 billion (approximately $150 million), marking a 29% decrease from the same period a year earlier (KRW 271.9 billion). Operating income came in at KRW 101.8 billion, and net profit was KRW 29.5 billion, down 39.6% and 81.6% from the same period last year, respectively.This underwhelming financial performance reflects the sluggish crypto market amid the nation’s economic downturn and the U.S. Federal Reserve’s interest rate hikes. The decrease in the exchange’s net profit in particular can be attributed to a loss in the valuation of crypto assets due to crypto price declines compared to the previous quarter.Positive outlookHowever, with the expected approval of the spot bitcoin exchange-traded fund (ETF) next year and the next Bitcoin halving, the market outlook is expected to improve gradually. Despite the current market conditions, Dunamu plans to continuously promote the mainstream adoption of blockchain services and explore new business ventures.“We will make efforts to revitalize the blockchain ecosystem and create an advanced investment environment,” Dunamu said. “We will strive to offer innovative services building on our unique technological capabilities.”

The Asia Web3 Alliance Japan, an agency that regards itself as a bridge between the Web3 ecosystem in Asia and Japan’s broader business sector, has reached out to the Securities and Exchange Commission in the United States with a view towards establishing a strategic collaboration.Photo by Clement Souchet on UnsplashFocus on Web3 regulatory innovation & tokenizationThe President of the organization, Hinza Asif, wrote to SEC Crypto Task Force Chairperson and SEC Commissioner, Hester Peirce, on the subject, on March 25. The letter, subsequently published by the SEC, sets out a proposal that centers on a strategic U.S.-Japan partnership relative to Web3 regulatory innovation and tokenization. The Japanese agency, which has set out cross-border synergy as one of its objectives, calls for collaboration between Japan’s Financial Services Agency, the Japanese Ministry of Economy, Trade and Industry and the Bank of Japan with the U.S. regulator. The Alliance proposes that the goal of that partnership would be the establishment of regulatory clarity in respect of the Web3 sector, together with the fostering of interoperability between a developing Web3 ecosystem in the U.S. and the one that’s developing in Japan. Token classification frameworkDelving deeper into proposal specifics, Asif sets out the formation of a harmonized token classification framework as a key objective. The proposal suggests that a distinction needs to be made between tokenized securities, utility tokens and non-security digital assets.  The alliance believes that right now, token classification is unclear, with projects struggling to understand what category their token falls within from a regulatory perspective. There’s a lack of token offering frameworks. While it sees that further work is required, the Asia Web3 Alliance Japan is encouraged by progress made by the SEC’s Crypto Task Force in identifying security categories. With this cross-border collaboration, the Japanese crypto advocacy group believes that there is an opportunity to achieve regulatory interoperability on an international basis. That would facilitate compliant cross-border token issuance. On that basis, the alliance suggests that standards be developed such that regulatory consistency is achieved internationally when it comes to items such as digital asset trading, custody and token issuance. The proposal sets out a need for reciprocal disclosure requirements between the two jurisdictions where cross-border token issuance is concerned. It advocates for mutual recognition of what it terms “compliant tokenized offerings.” Bringing safe harbor to JapanAnother focus area contained within the proposal is the suggestion of a need to implement a safe harbor approach in Japan for early-stage token projects in line with what has been put forward in the U.S. Peirce first put forward a token safe harbor proposal in the U.S. in 2020. It sets out to provide exemptions over a defined initial period for certain token issuances. The idea behind it is to enable these early-stage projects to innovate and mature without getting bogged down in a regulatory quagmire. The establishment of a U.S.-Japan Web3 regulatory roundtable is another strand contained within the proposal. This would provide a mechanism for ongoing dialogue between stakeholders such as regulators, industry leaders and legal experts.

About three years ago, in March 2021, the South Korean financial regulators implemented the Specific Financial Transaction Information Act to ensure that local cryptocurrency exchanges provide safe and sound crypto trading services to investors. It was also a move to prevent exchanges and investors from engaging in illicit money laundering practices.  However, the law has come across as a hassle to many crypto exchanges, as they were required to undergo verification processes to prove their reliability and to receive real-name accounts from banks. These accounts enable their users to trade crypto against the Korean won, helping exchanges stand out in the fiercely competitive crypto market amid surging Bitcoin prices. At the moment, only five crypto exchanges in Korea are qualified to provide such services. Bithumb, one of these few qualified fiat-to-crypto exchanges, has renewed its real-name account contract with NH Nonghyup Bank (NH Bank) for six more months, according to local news media Yonhap News Agency. Photo by Robin Jonathan Deutsch on UnsplashVarious factors in play for relatively short renewalCrypto insiders say that extending the contract for only six months appears to be quite a conservative move, as Bithumb has been making a year-long contract with NH Bank every year since 2018. Experts suggest various factors may have influenced Bithumb's decision, including the volatile crypto market, the Virtual Asset User Protection Act becoming effective in July and the exchange's planned initial public offering (IPO).  Some say the relatively short renewal of the contract comes after a flurry of complaints from Bithumb users about the unfavorable user experience, including the cumbersome process they must go through to increase the deposit limit of their real-name accounts linked to Bithumb. This appeared to have prompted Bithumb to feel reluctant about the 6-year-long collaboration and seek a partnership with another bank such as KB Kookmin Bank or the online-only Kakao Bank, according to local media Bizwatch. One bank official said that the relatively short renewal reflects Bithumb and NH Bank's commitment to addressing the inefficiencies of crypto transaction services, as the two companies plan to enhance their investor experience and marketing efforts over the next six months.  Crypto boom drives partnership between exchanges and banks NH Bank appears to be persuading Bithumb to maintain their partnership, one bank official said, because providing real-name accounts to crypto exchanges not only benefits exchanges but also banks. Having young crypto investors – mostly in their 20s to 40s – open real-name accounts at banks is seen as a significant opportunity to expand their customer base. One crypto insider said the ability to issue real-name accounts usually puts banks in a superior position when entering a partnership with crypto exchanges, but that doesn't seem to be the case in times like this when the crypto market is bullish more than ever.