The legislation for token securities (STO), which was expected to pass in the National Assembly, has once again failed. STO is a key element driving the digital asset transformation of the current Lee Jae-myung government, alongside stablecoins, and it was anticipated to pass as there was no disagreement among the ruling and opposition parties or the industry; however, it is still being deprioritized.
According to political circles on the 22nd, five STO bills were introduced at the National Policy Committee's Law Review Subcommittee (legislative subcommittee) on the previous day, but discussions did not take place. This is due to the lengthy discussions of previously introduced bills. A National Policy Committee official noted, "The STO bills are expected to take a long time for review, and there were concerns that urgent issues would not be addressed if they were discussed first, so they were placed as secondary items from the beginning." There were also opinions that since STO is an issue with no disagreement among the parties, it would pass in the next subcommittee, but the schedule for the subcommittee has not even been set.
The history of the failure to legislate STO has been quite long. Previously, an agreement was reached in the 21st National Assembly, but it fell through due to the expiration of terms during the conflicts between the parties. In the 22nd National Assembly, it was discussed without disagreement and was introduced to the legislative subcommittee in February, but it was pushed down the discussion queue due to the effects of martial law and impeachment. The disappointment in the industry has been reflected in the stock prices. As of 3 p.m. that day, Galaxia SM and GalaxiaMoneytree fell by 3.22% and 3.84%, respectively, compared to the previous day, and Wemade showed weakness with a decrease of 2.64%.
STO is an asset that issues digital tokens granting investor rights to physical assets or existing financial products based on blockchain. Token securities are tokens that have digitized existing securities such as stocks, bonds, and real estate revenue rights. Therefore, utilizing STO allows for the tokenization of assets like real estate or artworks that were previously too expensive or difficult to buy and sell, thereby enabling investment with a small amount.
As a result, investors can hold a small amount of securities equivalent to their own capital. The government is also emphasizing STO as a way to diversify the investment money concentrated in real estate into various physical assets, including stocks, as part of building a digital financial hub. On the 1st, during the National Security Council meeting, President Lee Jae-myung emphasized the policy direction of activating "alternative investment methods" represented by stocks to address the phenomenon of capital concentration in real estate in the Korean economy.
The virtual asset and financial industries argue that the passage of the STO bill is essential for advancing financial markets. If the STO legislation is enacted, a market will emerge where digital tokens can be bought and sold in real time like the stock market. Shares of startups that had no possibility of being listed or revenue rights from copyrights and music will be sold as structured products, opening the door for more investors to access various assets.
Due to STO, securities firms have already completed discussions on institutional design, regulatory frameworks, and foundations for issuance and distribution, and they have been building platforms for distribution and issuance. However, due to repeated legislative failures, the industry has referred to the state of STO as "quasi-abandonment." Many financial and investment firms have prepared for the STO business trusting the policies of the financial authorities, but since the legislation has not materialized, they are said to be incurring only expenses. Some securities firms that were preparing the STO infrastructure have even dismantled their related teams. Koscom, which is building the distribution infrastructure, explained that the morale of issuers and securities firms has been completely crushed.
A financial industry official stated, "STO is supported without disagreement from the government, political circles, and the financial industry, so I believed it would be legislated soon, but now I am uncertain about the possibility within this year," and added, "Considering that the stablecoin we keep talking about is also only being patented by financial firms and no discussions are taking place in the National Assembly, I doubt whether there are any advancements in becoming a digital asset hub."