Terra’s 'vortex of death' brings scrutiny from South Korean regulators

Quick Take

  • The National Assembly in South Korea held a meeting on Tuesday to discuss the fallout from the Terra collapse, while representatives from domestic crypto companies were also present.

South Korea’s financial regulators came together on Tuesday to discuss how to address fallout from this month’s collapse of the TerraUSD stablecoin. 

The Financial Supervisory Service (FSS), the Fair Trade Commission (FTC) and the Financial Service Commission (FSC) shared updates following an emergency meeting held at the National Assembly, according to local news reports. 

TerraUSD, an algorithmic stablecoin on the Terra blockchain known by its ticker UST, de-pegged from the dollar in catastrophic fashion this month, destroying more than $40 billion in value for investors. The Financial Intelligence Unit, the investigations unit of the FSC, referred to the incident — which saw the supply of luna soar in an effort to stabilize UST’s price — as a “vortex of death,” YNA News reported today. 

According to the FIU, there were 100,000 luna holders in Korea before the collapse — and this number increased sharply to 180,000 in the 10 days after UST lost its peg.

The FSS revealed on Tuesday that it plans to inspect the premises of companies that provide financial services related to the Terra blockchain, following its collapse, according to a report by Money Today.

Speaking after the event, Chan-woo Lee, senior vice president of the FSS, said that the possibility of the crisis affecting traditional financial markets was still low and in order to prevent the risk on-site investigations would be conducted. 

These inspections will look at payment services related to Terra, how the services are maintained, the status of withdrawal funds and the standards in place to protect users. 

Exchange compliance


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In addition to this the FSS will develop a research service aimed at analyzing the risk of cryptocurrencies and digital assets that circulate on domestic exchanges. The service will then classify these assets according to their risk characteristics. 

South Korea’s FTC announced plans to examine cryptocurrency exchanges compliance with guidance from last year relating to terms and conditions, according to local reports from YNA NewsLast year the FTC recommended that 16 domestic exchanges, including Bithumb Korea and Dunamu, should correct their existing terms and conditions as they were unfavorable to users. 

"Starting in June, we will intensively check whether the recommendations for correction of 20 types of unfair terms and conditions are implemented, and issue a correction order if necessary," it said.

Following the meeting on Tuesday, the FSC announced it was actively reviewing new cryptocurrency regulation relating to stablecoins and decentralized finance (DeFi), YNA news reported. 

"The characteristics of virtual assets such as decentralization, anonymity and transboundary nature make it essential to secure consistency with global regulations and strengthen the cooperative system to secure regulatory effectiveness," the FSC noted, according to local reports. 

The regulator went on to stress the importance of global regulatory consistency. Noting that consideration must be given to trends discussed by international institutions like the Bank of International Settlements and the Financial Stability Board, as well as the US executive order on crypto. 

Local reports noted that there are 13 bills pending in the National Assembly at present relating to the crypto industry, including the Electronic Financial Transactions Act. 

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About Author

Adam Morgan is a reporter covering cryptocurrency, financial markets, and economics – anything from price movements, earnings reports, and inflation to the U.S. Federal Reserve interest rate decisions and everything in between. Adam is based in London.