15% Equity Red Line: The Governance Revolution and Capital Reshuffling of the Korea Exchange

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 institutionalizing the market: requiring major shareholders of domestic cryptocurrency exchanges to significantly reduce their shareholding ratios.

According to a report obtained by KBS, the FSC has fundamentally changed its positioning of cryptocurrency exchanges. Exchanges in South Korea, 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. Over-concentration of power: A few founders or major shareholders have absolute say 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 doubts.

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 that of the securities market's "Alternative Trading System (ATS)," 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 they be allowed to hold up 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): Chairman of Dunamu holds 25.5% of shares

As the absolute leader in the South Korean virtual exchange market, Upbit is at the forefront. The author previously cited a report from the Dong-A Ilbo in the article "Naver 'Swallows' Upbit: A 'Conspiracy' for Dominance of the Korean Won Stablecoin," stating that major shareholders of Dunamu include Chairman and Board Chairman Song Ji-hyung, who holds approximately 25.5% of 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. To meet the requirement of holding below 20%, Bithumb Holdings must sell or transfer over 50% of its equity. This is not merely a simple reduction but may signify a fundamental reshaping of the entire group's holding structure.

3. Coinone: Chairman holds 54% of 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 shares

Previously reported by the Chosun Ilbo, Korbit is currently held by NXC and its subsidiary Simple Capital Futures, which together hold approximately 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 shareholding ratio limits after the proposal is passed; 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 Regulation

Behind this proposal is a clear intention from regulators to promote a "highly institutionalized" cryptocurrency market—transforming the rough-and-tumble 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 essentially paves the way for traditional financial institutions like banks and brokerages to enter the market, with capital-rich financial giants potentially becoming the new equity holders. This could accelerate the "highly institutionalized" nature of South Korea's cryptocurrency market.

However, controversy is equally prominent. From an innovation perspective, will this stifle the original vitality of the cryptocurrency 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 into shoes." 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 favorable news items 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 is passed, exchanges may fall into governance chaos, strategic fluctuations, or even power struggles, leading the industry into a prolonged adjustment period. During this time, cryptocurrency-friendly jurisdictions like Singapore and Dubai may seize the opportunity to attract South Korean cryptocurrency 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 South Korea's cryptocurrency 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.