Landing in South Korea: A Grand New Battle in Blockchain

Last September, South Korea briefly became the second country after China to explicitly ban ICOs, prompting many local blockchain projects to consider relocating abroad.

However, as time passed, the ban not only failed to be enforced but was ultimately lifted, making South Korea one of the most popular blockchain markets in Asia and even the world. A large number of blockchain projects began to rush into the South Korean market, and many have already tasted success.

In this rush, why are blockchain projects so keen on the South Korean market? What market expansion strategies have they adopted? What is their current survival status?

In interviews with nearly ten blockchain projects, almost all expressed a willingness to enter the South Korean market, with many projects already establishing local teams. The rush into South Korea has become a new trend in the blockchain industry.

1. One of the Most Blockchain-Friendly Countries

It is well known that South Korea is a country that is quite open and inclusive towards blockchain and digital currencies. According to internal sharing data from Huobi Korea, there are currently about 27 million economic entities participating in various investments in South Korea, among which there may be over 3 million cryptocurrency users. Some local institutions estimate that the latest data shows nearly 8 million users, accounting for 16% of the national population and 30% of total investment entities.

In the investment-hungry South Korean market, the "kimchi premium" was famously noted in the cryptocurrency circle earlier this year, with some cryptocurrencies trading on local exchanges at prices 30-40% higher than on other exchanges. CoinMarketCap even excluded South Korean prices from its global average price calculations for a time.

As of today, although the phenomenon of significant price discrepancies among cryptocurrencies has become less common, the trend of prices soaring upon listing on South Korean exchanges continues, even in the depths of a bear market. On August 31, the Wanchain token (ITC) was listed on the Bithumb exchange, reaching a peak price that was 110% of the previous day's low. This scene has been witnessed to varying degrees with cryptocurrencies like IOST, CMT, and ELF.

Wanchain token ITC price performance before and after listing on Bithumb

Currently, South Korea ranks among the highest in terms of public awareness of blockchain and policy friendliness.

Regarding the reasons for the South Korean market's enthusiasm, Karen believes it is related to the country's economic difficulties in recent years and a lack of stimulus. Although the public generally has a high income accumulation, the growth potential of traditional investment targets like the stock and real estate markets is relatively low, leaving a significant lack of high-yield investment opportunities. The emergence of cryptocurrencies like Bitcoin has broken this deadlock.

However, DCC founder Zhu Shengqing offered another perspective: "I conducted research, and the results show that there are fewer opportunities for young people to make money in South Korean society now, leading to a stronger speculative mentality and gambling nature, which makes young people very enthusiastic about trading cryptocurrencies." He also noted that small cryptocurrencies are particularly well-accepted among the South Korean public for the same reasons.

Both viewpoints confirm that South Korea is facing a severe economic downturn, with increasingly closed avenues for social mobility. "Therefore, the South Korean government also hopes to stimulate economic development by supporting the blockchain industry and thereby enhance its international standing," Karen added.

2. Market Expansion Strategies

From the overall economic landscape and lifeblood of South Korea, both traditional industries and the internet sector are mainly controlled by a few large conglomerates, such as Samsung, Lotte, and LG. Startups without background and resources find it difficult to break through the barriers set by these giants. CoinTiger founder Franklin further pointed out that the local populace in South Korea exhibits a clear "exclusionary" mentality, emphasizing the protection of the domestic market.

At the same time, there are still significant differences in thinking and cultural approaches between China and South Korea. Based on these characteristics, Chinese blockchain projects must put significant effort into finding partners and establishing localized operational teams to successfully enter the South Korean market.

For blockchain projects venturing into South Korea, the first step is to hire locals who understand the South Korean market and culture to form a localized operational team. A more prudent approach is to seek local partners to jointly promote business development or to seek investment and endorsement from local South Korean institutions. For example, OKCoin chose to collaborate with South Korea's largest internet group, NHN, to jointly invest in establishing OKCoin Korea, with operations developed and managed by a local team.

"Including us, many projects that have just entered the South Korean market often take detours and spend more money due to unfamiliarity with local user habits, leading to issues of adaptation," LendChain founder A Yi told Chain Catcher. After some detours, they have also partnered with local companies that understand the market and have mature strategies.

JB Lee, global operations director of aelf, who has achieved significant success in the South Korean market, stated that virtual currencies are fundamentally an industry undergoing rapid development and change, thus requiring an operational team that can adapt flexibly, continuously interact with the community, and produce high-quality content.

However, this is not easy. "Unlike the WeChat ecosystem that has developed over many years in China, the multi-user online chat community ecosystem in South Korea only emerged last year, and there are very few talents proficient in 'online community management,'" JB Lee told Chain Catcher. When recruiting, aelf generally has three requirements for operational talents: a deep understanding of blockchain, fluency in multiple languages for business communication, and strong entrepreneurial thinking and learning ability.

However, for most projects, recruiting talents with excellent qualities remains difficult and costly. According to Chain Catcher, as a preliminary exploration, recruiting Chinese students studying in South Korea has become a more realistic choice for some projects.

The second step is to conduct large-scale promotional activities, using various events and media to enhance public awareness of the project among South Koreans and draw them into the community, creating momentum and anticipation for the upcoming listing on local exchanges.

According to Karen, the promotional steps for blockchain projects in South Korea mainly include the following parts. In the early stages, project teams should spread PR articles in mainstream media online, especially keyword news on South Korea's primary search engine NAVER, and begin hosting offline events and engaging in light viral marketing. One month before the listing, project teams need to launch large-scale promotions on television, print media, YouTube, etc., increasing the frequency of offline interactions with the South Korean public. After the listing, project teams should focus on managing community members, maintaining a moderate frequency of mainstream media PR and marketing.

Taking Quantum Chain, which first gained popularity in the South Korean market, as an example, it held a community fan meeting in South Korea in August 2017 and released its second version of the test network there. Two months later, Quantum Chain collaborated with several distributed applications developed based on its platform to hold three Meetup events in South Korea, with a total of about 500 participants. "During that time, various channels in South Korea were promoting Quantum Chain, and Shuai Chu became almost a celebrity in the South Korean cryptocurrency circle," Karen told Chain Catcher.

The massive promotional efforts of Quantum Chain also yielded significant results. In October 2017, five days after Quantum Chain was listed on the mainstream South Korean exchange Bithumb, the global total transaction volume of QTUM increased sixfold compared to the previous day, reaching an all-time high, with Bithumb accounting for 51% of the trading volume and another South Korean exchange, Coinone, accounting for 33%.

"The awareness of Chinese blockchain projects regarding the South Korean blockchain market first began with Quantum Chain," said Wanchain co-founder Lyu Xinhao. Starting from early 2018, the number of blockchain projects hosting events and promoting themselves in South Korea gradually increased, with a surge in May and June, as hundreds of projects flocked to South Korea for exploration.

At the same time, the difficulty for projects to list on South Korean exchanges has also increased. Lyu Xinhao told Chain Catcher that Wanchain experienced a preparation period of over six months before listing on Bithumb, during which they repeatedly communicated with the exchange and promoted themselves on social media.

Due to the previously mentioned challenges in team building and the professionalism required for marketing, almost all blockchain projects in South Korea rely on local professional marketing companies for their promotions. "There are already many blockchain PR companies in South Korea that possess the language and cultural understanding to serve Chinese projects," JB Lee said.

In terms of community building results, aelf claims to have over 700 Kakao users in South Korea and 17,000 members in its Telegram group, with one active user even being absorbed as a core member of the aelf South Korean team. DCC stated that its community in South Korea has about 2,000 members.

A Yi also told Chain Catcher that currently successful projects in the South Korean market include NEO, Quantum Chain, TRON, aelf, RUFF, DACC, and Waltonchain, and the strong support from the South Korean community is also a significant reason for these projects' global expansion.

3. The Dilemma of Exchanges

In contrast to the flourishing of public chain projects, the exploration of Chinese exchanges in the South Korean market has been relatively bleak.

The first Chinese exchange to officially enter the South Korean market was Huobi, which launched Huobi Korea on March 31 of this year, listing over 100 cryptocurrencies to date. According to data released by Huobi, Huobi Korea had over 200,000 registered users more than two months after its launch. OKCoin Korea quickly followed suit, launching on April 2 and listing over 40 cryptocurrencies to date.

According to the official data from both exchanges on September 18, Huobi Korea's daily trading volume is around 14 million yuan, while OKCoin Korea's daily trading volume is around 35 million yuan (previously peaking at 115 million yuan, but the average daily trading volume has remained around 30 million yuan), which is significantly lower than Bithumb's average daily trading volume of about 2 billion yuan and UPbit's average daily trading volume of about 1 billion yuan.

More specifically, while OKCoin's trading volume is relatively high, 80% of it comes from three small cryptocurrencies: HYC, AUTO, and AAC, meaning that the actual value of the daily trading volume needs to be discounted.

OKCoin Korea's cryptocurrency trading volume ranking

The poor performance of exchanges like Huobi in advancing their business in South Korea is partly due to the previously mentioned differences in user habits and partly due to the strict regulations imposed on the exchange industry in South Korea.

Franklin, the founder of CoinTiger, explained to Chain Catcher that South Korea has very strict compliance requirements for exchanges, necessitating the establishment of complex KYC review processes to meet fiat currency deposit requirements. Additionally, South Korea requires compliant exchanges to use local financial clouds, which are estimated to be several times more expensive than Alibaba's financial cloud, and cannot serve users outside of South Korea. Therefore, although CoinTiger initially established a local operational team in South Korea, it quickly chose to withdraw.

When Huobi Korea launched at the end of March, it announced that fiat trading would be available soon, but it has yet to be activated. Binance also prepared to enter the South Korean market in June and July but recently stated that it is still waiting for a final decision from local financial institutions.

From news reports, it appears that the South Korean government has been increasingly frequent in conducting surprise inspections on major exchanges, primarily focusing on issues like tax evasion and inflated trading volumes. Coupled with the announcement earlier this year that the South Korean government would impose corporate and local income taxes of up to 24.2% on cryptocurrency exchanges, the time and financial costs for exchanges operating in South Korea are rising. In contrast, local fiat exchanges in South Korea "are backed by large conglomerates, and the energy and influence these conglomerates possess are not something a foreign company can match," Franklin stated.

Overall, at present, Chinese blockchain projects in South Korea are still in the stage of building awareness and reputation, with almost no projects achieving substantial breakthroughs in business. However, given South Korea's policy friendliness and public awareness of blockchain, the number of projects venturing into South Korea for "gold plating" is bound to increase.

In interviews, most respondents expressed optimism about Chinese projects entering the South Korean blockchain market, with the only pessimistic view coming from Franklin, the founder of CoinTiger, who chose to withdraw.