Original author: KarenZ, Foresight News

As 2025 approaches, the Financial Services Commission (FSC) of South Korea has proposed a measure in its "Second Phase Legislation on Virtual Assets," aimed at promoting market institutionalization: requiring major shareholders of domestic cryptocurrency exchanges to significantly reduce their shareholding ratios.

According to a report obtained by KBS from the National Assembly, the FSC has fundamentally changed its positioning of cryptocurrency exchanges. The South Korean exchanges, which have over 11 million active users, will be defined as "core infrastructure" for virtual assets. This has been interpreted by the market as referring to the four exchanges: Upbit, Bithumb, Coinone, and Korbit.

This shift in positioning may provide a legal basis for stricter regulatory intervention.

Regulatory Focus: Two Major Distortions in Governance Structure

Regulatory authorities have sharply pointed out that the current governance structure of exchanges has serious distortions:

• 1. Excessive concentration of power: A few founders or major shareholders have absolute decision-making power over platform operations, lacking effective checks and balances. This management model may lead to conflicts of interest and moral hazards when facing significant decisions.
• 2. Privatization of profits: The enormous transaction fees generated by exchanges as infrastructure disproportionately flow into the pockets of specific individuals. The fairness of this profit distribution has raised widespread concerns.

Limiting Major Shareholders' Shareholding Ratio to 15% to 20%

To address this issue, the FSC has proposed introducing a major shareholder eligibility review system similar to the "Alternative Trading System (ATS)" level in the securities market, suggesting that the shareholding ratio of major shareholders in exchanges be limited to between 15% and 20%.

According to KBS, under the current Capital Markets Act, major shareholders and related parties of an ATS cannot hold more than 15% of voting shares, and only in the case of public funds or with special approval from the FSC can this be allowed to rise to 30%.

This standard reflects the regulatory authorities' intention to align the governance structure of cryptocurrency exchanges with that of traditional financial institutions, moving from unregulated growth to standardized governance.

The Four Major Exchanges Under Pressure

If this proposal is approved and implemented, the governance structures of South Korea's four major exchanges will face unprecedented restructuring challenges:

1. Upbit (Operator: Dunamu): Dunamu's chairman holds 25.5% of the shares

As the absolute leader in the South Korean virtual exchange market, Upbit is at the forefront. I previously cited a report from the Dong-A Ilbo in my article "Naver 'Swallows' Upbit: A 'Conspiracy' for Dominance in the Korean Won Stablecoin," stating that Dunamu's major shareholders include chairman and board chairman Song Ji-hyung, who holds approximately 25.5% of the shares. If the proposal passes, he will be forced to sell about 5% to 10% of his shares.

More critically, Dunamu is currently advancing a stock swap and acquisition with Naver Financial (the financial subsidiary of South Korean internet giant Naver). The new regulations will not only weaken the founder's control but may also raise deep concerns among regulators about market concentration. The regulatory authorities seem intent on preventing the emergence of monopolistic platforms.

2. Bithumb: Bithumb Holdings holds 73% of the exchange's shares

Bithumb's equity structure is even more concentrated. According to KBS, its holding company, Bithumb Holdings, holds 73% of the exchange's shares. If it must meet the standard of holding below 20%, Bithumb Holdings will have to sell or transfer over 50% of its equity. This is not just a simple reduction but may mean a fundamental reshaping of the entire group's holding structure.

3. Coinone: The chairman holds 54% of the shares

For Coinone, chairman Cha Myung-hoon currently holds 54% of the shares, representing a typical "one-person absolute control" model. If he disposes of more than 34% of his shares, it means he will lose absolute control over the company.

For a mid-sized exchange like Coinone, once the dominant management rights are lost, whether the company can maintain strategic continuity becomes uncertain. This is not just a matter of equity adjustment.

4. Korbit: NXC and its subsidiaries hold approximately 60.5% of the shares

Previously reported by the Chosun Ilbo, Korbit is currently held by NXC and its subsidiary Simple Capital Futures, which together hold about 60.5% of the shares, while SK Square holds about 31.5%. By the end of December, Mirae Asset was considering negotiations to acquire 92% of Korbit's shares, with a transaction valuation of up to 140 billion won (approximately 97 million USD). Mirae Asset is also one of the shareholders of Naver Financial.

If Mirae Asset completes the acquisition, it will also have to face the shareholding ratio limits after the proposal passes; if the acquisition is stalled due to the new regulations, how will Korbit's existing shareholders respond to the forced reduction?

The Logic and Concerns Behind the Regulation

Behind this proposal is the regulatory authorities' clear intention to promote "high institutionalization" of the crypto market — transforming the rough development of the cryptocurrency exchange industry with the mature systems, risk control capabilities, and compliance culture of traditional finance to reduce systemic risks.

Some analysts believe that forcing major shareholders to reduce their holdings is essentially paving the way for traditional financial institutions like banks and brokerages to enter the market, with capital-rich financial giants potentially becoming the new shareholders. This could accelerate the "high institutionalization" of the South Korean crypto market.

However, the controversy is equally prominent. From an innovation perspective, will this stifle the original vitality of the crypto industry? According to a viewpoint cited by KBS, forcibly applying the equity dispersion rules of traditional securities exchanges to the virtual asset exchange industry is "cutting one's feet to fit the shoe." Forcing founders to sell severely infringes on private property rights and may lead to management turmoil, which is counterproductive to protecting investors.

Although the "Second Phase Legislation on Virtual Assets" includes many positive news such as the legalization of stablecoins and the normalization of market access, the "sword of Damocles" hanging over exchanges still leaves the market anxious.

There are widespread concerns that if the proposal passes, exchanges may fall into governance chaos, strategic oscillation, or even power struggles, leading the industry into a prolonged adjustment period. During this time, crypto-friendly jurisdictions like Singapore and Dubai may take the opportunity to attract South Korean crypto companies and capital outflows, weakening the competitiveness of the local blockchain industry.

Conclusion

Regardless of the outcome, this game is stirring the discourse system and power structure of the South Korean crypto market.

Exchanges can no longer consider themselves purely as market entities, and regulatory authorities must also seek a delicate balance between financial stability and industry development.

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