South Korea’s Crypto Exodus: The Outflow of Capital, Enterprises, and Talent

Key Points

·  South Korea’s high cryptocurrency trading volume has attracted global attention, but unclear regulations and a lack of guidelines have hampered the industry’s development.

·  The government prohibits the opening of real-name accounts for cryptocurrency trading for businesses. This restriction, coupled with an ambiguous regulatory framework, has led to an outflow of talent, capital, and businesses, weakening the competitiveness of the Web3 ecosystem.

·  As the global Web3 industry is expected to develop rapidly under the Trump administration, South Korea must reform its regulatory policies to ensure the long-term sustainability of the industry.

1. Introduction

The inauguration of "crypto-friendly president" Trump and the establishment of the Crypto 2.0 TF of the U.S. Securities and Exchange Commission (SEC) will accelerate the structural changes in the global Web3 market. This is a critical turning point. Talent, capital, and enterprises may migrate to countries with sound regulatory frameworks, while the outflow from countries with regulatory uncertainty will intensify.

2024 Capital Inflow/Outflow by Country, Data Source: Henry & Partners

South Korea is also in this trend. Henry & Partners' "2024 Private Wealth Migration Report" shows that South Korea ranks first in Asia's high-net-worth immigration. Economic, social and cultural factors have driven this immigration wave. Although not directly associated with the Web3 industry, these groups of people often act like canaries in a coal mine, foreshadowing changes in a country's business environment.

Against this backdrop, it is crucial to revisit South Korea's Web3 industry. This report explores the flow of capital, companies, and talent in South Korea's Web3 market, as well as the key challenges the industry must address.

2. Capital Outflow: Offshore Exchanges and Accelerated On-Chain Transfers

South Korea's cryptocurrency market has grown rapidly. There are 15.6 million cryptocurrency investors holding $73 billion in assets. The average daily trading volume of cryptocurrency exchanges is now comparable to the combined trading volume of the Korea Composite Stock Price Index (KOSPI) and the Korea Stock Exchange (KOSDAQ). This reflects the enthusiasm of South Korean investors for crypto assets, driven by low stock market returns and political instability associated with martial law.

However, the outflow of crypto assets has reached a worrying level recently. During the martial law, service disruptions at major local exchanges undermined people's trust in the stability of these platforms. At the same time, diversified investment opportunities offered by foreign exchanges and decentralized finance (DeFi) further promoted capital migration.

The Financial Services Commission of South Korea's Virtual Asset Service Provider (VASP) Survey in the first half of 2024 showed that fund transfers to out-of-town VASP wallets increased 2.3 times year-on-year. On-chain data confirms this trend, indicating that the migration of assets from local exchanges to foreign platforms continues to increase.

In the long run, capital migration may harm South Korea's Web3 industry. Transaction fees and service revenue flow abroad, weakening the competitiveness of the local ecosystem and reducing investor protection. This also raises concerns about the decline in demand for the won and the increase in volatility of its value.

3. Migration Wave: Moving Headquarters to Crypto-Friendly Countries

South Korea's Web3 companies are accelerating offshore migration. In 2024, Nexon's blockchain unit Nexpace and Klaytn and Line Finschia's Kaia Foundation moved to Abu Dhabi. WeMade's Wemix moved to Dubai. The Web3 industry is rapidly moving to countries with clearer and more favorable regulations.

South Korea faces many obstacles in promoting Web3-related businesses. Companies are unable to open corporate accounts for cryptocurrency transactions, making it difficult to use crypto assets. This brings complexity to the monetization of crypto assets and creates problems in accounting, taxation, and business operations. For example, in the cryptocurrency payment business, Company A may receive crypto assets from consumers and need to settle payments with sellers in Korean won. Without a corporate account, monetizing assets is almost impossible.

Although South Korea has established a regulatory framework, the lack of specific guidelines for stablecoins, DeFi, and Web3 games has limited industry growth. The country's proactive regulatory approach restricts businesses that are not explicitly licensed. In contrast, the global market has benefited from regulatory sandboxes that support various demonstration projects.

The Trump administration's stance on cryptocurrencies may highlight this difference, with a favorable regulatory environment overseas accelerating the migration of Web3 companies from South Korea.

4. Brain drain: weakening the technological competitiveness of the Web3 industry

The relocation of South Korean Web3 companies abroad may have a negative impact on the domestic Web3 talent pool. As companies move to countries with clearer and more favorable regulations, domestic job opportunities may decrease, leading to a brain drain. This may hinder the development of the domestic Web3 ecosystem.

The migration of talent is not just a problem for the Web3 industry in South Korea. South Korea has one of the highest rates of migration of key talent to the United States, especially those with master's and doctoral degrees. This trend is particularly evident in the technology-dependent Web3 industry and may harm the competitiveness of the industry.

In contrast, countries such as the United States and the United Arab Emirates promote the development of their Web3 industries through clear regulations and supportive policies. South Korea's unclear regulatory environment has accelerated the brain drain, which poses a long-term threat to South Korea's technological competitiveness and industrial ecosystem.

5. Challenges and Opportunities of the Korean Web3 Market in 2025: Regulatory Reform and Industry Growth

South Korea has received global attention for its cryptocurrency trading volume. However, this trading volume has not promoted industry development and made the country a liquidity channel for global traders. This structure is not conducive to sustainable growth. South Korea urgently needs to make progress in business and technology to strengthen the Web3 ecosystem.

Source: Arthur Hayes

South Korea has been marginalized in the global Web3 development due to insufficient local innovation and regulatory uncertainty. This over-reliance on transaction volume rather than ecosystem building has led to a "Korea discount" in the international market.

In 2025, with the new government taking office, major changes are expected to occur in the global industry. South Korea is at a critical crossroads amid these changes. Positive moves include allowing cryptocurrency operators to open corporate accounts, developing stablecoin regulations, and advancing cryptocurrency legislation. However, these efforts are only scratching the surface.

To make progress, South Korea must address risks, analyze global policy shifts, and develop a regulatory framework tailored to domestic circumstances. South Korea must shift from a singular focus on transaction volume to building a sustainable innovation hub characterized by outstanding business and technological leadership.