🚨 Economic Significance and Future Outlook of Security Token Offering (STO) Legislation
Today Korean Economic News | 2025.05.09
📌 Ruling and Opposition Parties Unite on STO Legislation... Market Competition Heats Up
💬 Ahead of the June 3 presidential election, both ruling and opposition parties are forming a consensus on Security Token Offering (STO) legislation. Democratic Party candidate Lee Jae-myung has promised to make Korea a digital financial hub, while the People Power Party is pushing to establish a Digital Asset Basic Law and a special committee on virtual assets. The Financial Services Commission has launched a Capital Market Strategy Forum, and the Korea Securities Depository plans to unveil an STO testbed platform in June. As a result, competition to secure market position is intensifying across the industry, including securities firms, banks, and platform companies.
1️⃣ Easy Understanding
Let's learn what Security Token Offerings (STOs) are and why both political parties are actively supporting legislation now.
Security Token Offering (STO) means using blockchain technology to issue digital tokens representing various assets like stocks, bonds, real estate, and artwork. For example, a building worth 10 billion won can be divided into 10,000 digital tokens, allowing investors to participate with small amounts of money. This lowers investment barriers and increases asset liquidity.
Currently in Korea, there is no clear legal framework for security tokens, so services are only provided in a limited way through financial regulatory sandboxes. This results in insufficient investor protection, and companies face difficulties expanding their businesses.
With the June presidential election approaching, both parties are highlighting STO legislation as a key promise. Democratic Party candidate Lee Jae-myung presented a vision to "resolve the Korea discount through digital finance and make Korea a global financial hub." The People Power Party is also promoting market activation by pushing for a Digital Asset Basic Law and establishing a special committee on virtual assets.
At the government level, the Financial Services Commission has launched a Capital Market Strategy Forum, and the Korea Securities Depository plans to unveil an STO testbed platform in June. These efforts aim to establish the technical and institutional foundation needed for issuing and distributing security tokens.
Accordingly, the financial industry, including securities firms, banks, and platform companies, is speeding up business preparations. Major securities companies like Kiwoom, Mirae Asset, Korea Investment, and KB Securities have already built related systems or formed partnerships to compete for market position.
Security tokens are more than just an investment tool; they are a core infrastructure for digital finance. Once legislation is in place, we can expect both capital market innovation and the creation of new investment opportunities.
2️⃣ Economic Terms
📕 Security Token Offering (STO)
Security tokens use blockchain technology to issue financial or physical assets in digital token form.
- Unlike traditional securities (stocks, bonds), they are issued and managed using blockchain-based distributed ledger technology.
- Physical assets (real estate, artwork) or financial assets can be tokenized, allowing fractional investment with small amounts.
📕 Distributed Ledger Technology
Distributed ledger technology records and manages transaction information collectively by network participants rather than a central server.
- Transaction records are stored across multiple participants (nodes), making them difficult to forge and highly transparent.
- Transactions can be made directly without intermediaries, saving time and cost.
📕 Digital Assets
Digital assets refer to valuable assets that exist on the internet or digital networks.
- These include virtual assets (like Bitcoin), security tokens (STOs), and NFTs (Non-Fungible Tokens).
- Ownership is recorded on the blockchain for transparent management, and trading is possible 24 hours a day.
📕 Financial Regulatory Sandbox
A financial regulatory sandbox allows innovative financial services to be tested for a certain period exempt from existing regulations.
- When designated as an innovative financial service, relevant regulations can be waived for up to 4 years.
- Currently, real estate fractional investment platforms like KASA and Funble provide services through the sandbox.
3️⃣ Principles and Economic Outlook
💡 Economic Effects and Application Fields of Security Tokens
Let's look at the economic effects and various application fields that security tokens will bring.
First, security tokens greatly increase asset liquidity. High-value assets like real estate or artwork originally had high transaction costs and were difficult to divide, so only a few investors could access them. But by dividing these assets into small units through security tokens, many people can easily invest. For example, a 5 billion won building in Gangnam can be divided into 10,000 tokens, making investment possible from just 500,000 won. This increases asset liquidity and contributes to active trading. Also, 24-hour trading is possible, and direct transactions without intermediaries save costs and time.
Second, security tokens can be used in various fields. In real estate, commercial buildings, officetels, and rental housing can be tokenized to share rental income and profits from rising asset values with investors. In the arts and culture field, artwork and rare collections can be tokenized to give ordinary people a chance to invest in masterpieces. Recently, services that tokenize K-POP music copyrights to share music revenue have also appeared. In corporate finance, companies can raise funds through security tokens. Especially for startups and small businesses, this can be an easier way to gather funds than an IPO (Initial Public Offering), helping to energize the startup ecosystem.
Third, security tokens help attract global investors and expand the market. Because of blockchain technology's nature, cross-border transactions are possible, allowing foreign investors to easily invest in Korean assets. This promotes foreign capital inflow and expands the domestic capital market. Especially for unique Korean assets like K-content and K-real estate, there's potential to develop new financial products called 'K-security tokens' by attracting global investment demand. Also, as the security token market becomes active, new jobs are expected to be created in various fields like technology development, platform operation, and asset evaluation.
Security tokens are more than just investment products; they are a new financial infrastructure that can lead innovation in the capital market. If legislation achieves a balance between investor protection and market activation, it will positively impact domestic financial industry competitiveness and economic growth.
💡 Key Issues and Challenges for Legislation
Let's look at the key issues and challenges that need to be resolved for security token legislation.
First, harmony with existing legal frameworks is an important task. To regulate security tokens, amendments to the Capital Markets Act and Electronic Securities Act are needed. The main issue is clearly defining the legal definition and scope of security tokens. Currently, the Financial Services Commission defines security tokens as "digitized securities under the Capital Markets Act using distributed ledger technology," but in practical application, it can be unclear which assets qualify as securities. It's also important to establish investor protection measures throughout the entire process of issuance, distribution, and storage of security tokens. Core elements of existing securities regulations, such as total issuance management and prevention of unfair trading, should also apply to security tokens.
Second, coordination of interests between issuers and investors is necessary. For security tokens to thrive, issuance procedures need to be simplified while ensuring investor protection. Particularly for security tokens based on physical assets like real estate or artwork, clear standards are needed for evaluating and managing the underlying assets and profit distribution methods. The scope and method of information disclosure after security token issuance, and the obligations of issuers, must also be specified. Immediate information provision is necessary when asset values change or important events occur so investors can make rational decisions.
Third, technical stability and security are important. Since security tokens are based on blockchain technology, system stability and security are key. Technical and institutional measures are needed to prevent damage from hacking or system errors. The testbed platform being prepared by the Korea Securities Depository is an important step in verifying this technical stability. Standards for licensing security token trading platforms and operating norms must also be established. Especially important are institutional measures to ensure basic principles of financial transactions, such as anti-money laundering and identity verification, are maintained in the security token market.
Security token legislation goes beyond simply introducing new financial products; it's about building financial infrastructure suitable for the digital age. If laws are designed to balance investor protection and industry innovation, it will provide a foundation for Korea to gain competitiveness in the global digital finance market.
💡 Response Strategies of Major Domestic and Foreign Companies
Let's look at the movements of major domestic and foreign companies to secure positions in the security token market.
First, domestic financial institutions are actively building security token platforms. Securities companies are focusing on security token businesses as future growth engines. Mirae Asset Securities has launched a working group for security token practitioners, and Korea Investment Securities has formed 'Korea Investment ST Friends' with Kakao Bank and Toss Bank. KB Securities has created a dedicated organization called 'ST Owners', and NH Investment Securities has launched 'STO Vision Group' focused on 'digitalizing unlisted stocks'. Kiwoom Securities has already established a fractional investment tab in its MTS (Mobile Trading System) and provides services in partnership with the music investment platform 'Musicow'. Hana Securities is known to have completed an integrated system with artwork selected as its first fractional investment product.
Second, IT companies and platform operators are also entering the security token market. Large IT companies like Naver and Kakao are preparing to enter the security token market based on their blockchain technology capabilities and large user bases. Kakao, in particular, is expanding its digital asset business through its subsidiary GroundX, which operates the blockchain platform 'Klaytn'. Specialized platforms in various fields, such as Musicow (music copyright), TESSA (artwork), and Funble and KASA (real estate), are also upgrading their business models in preparation for security token legislation. They have the advantage of already providing services through regulatory sandboxes and gaining experience in the market.
Third, the security token market is also growing rapidly overseas. In the United States, platforms like tZERO and Securitize support security token trading under SEC (Securities and Exchange Commission) regulations. Singapore-based ADDX is one of the most active security token platforms in Asia, with KB Securities investing $20 million. Germany amended its Electronic Securities Act in 2021 to establish a legal basis for security tokens, and Japan is also reorganizing regulations related to security tokens. Global financial institutions already see the security token market as a key part of future finance and are expanding investments, making them both competitors and potential partners for domestic companies.
Competition among companies to secure positions in the security token market is expected to become even more intense. Once legislation is in place, the market will grow rapidly, and companies with technology capabilities, user experience, and asset securing abilities will have an advantage in competition. Specialized strategies for tokenizing Korea's strengths, such as K-content, real estate, and high-tech companies, will be particularly important.
4️⃣ In Conclusion
The consensus forming between ruling and opposition parties on Security Token Offering (STO) legislation marks an important advancement for digital transformation and innovation in Korea's financial market. Security tokens have the potential to increase investment accessibility and improve capital market efficiency by using blockchain technology to digitize various assets.
Once legislation is in place, various assets like real estate, artwork, and music copyrights will be tokenized, providing new investment opportunities for general investors. Startups and small businesses will gain new channels for raising funds, and financial institutions and platform companies will create new business opportunities.
However, investor protection and market stability are essential for the healthy development of security tokens. The core values of existing securities regulations, such as transparency in issuance and distribution, information disclosure obligations, and prevention of fraudulent transactions, must be maintained in the security token market.
Currently, various entities including political parties, government agencies, and private companies are preparing to activate the security token market. Practical movements have already begun, including the Korea Securities Depository's testbed platform launch, securities companies' system building, and specialized platforms' service upgrades.
Security token legislation goes beyond simply introducing new financial products; it represents an important opportunity for Korea to leap forward as a global digital finance hub. If laws are designed to balance investor protection and industry innovation, and a healthy market ecosystem is created based on this, security tokens will become a new growth engine for Korea's financial market.