Virtual asset venture capital loosens its grip, is a spring for crypto startups in South Korea coming?

Author: Zen, PANews

After seven years, South Korean virtual asset companies have finally regained the status of "risk enterprises," allowing them to enjoy support such as venture capital, technology guarantees, and policy financing as technology startups and growth companies.

The opening of doors for crypto companies comes from the amendment to the "Special Act on the Cultivation of Risk Enterprises" passed by the South Korean Ministry of SMEs and Startups and the Cabinet on September 9. This amendment removes "blockchain/virtual assets (cryptocurrency) trading and brokerage" from the list of "restricted/prohibited" industries and will officially take effect on September 16.

7-Year Restriction Order and the Nearly "Disappeared" South Korean Crypto Startups

In October 2018, the South Korean government, aiming to curb speculation, protect retail investors, and ensure financial stability, listed virtual asset-related businesses in the "restricted/limited industry" category of the "Special Act on the Cultivation of Risk Enterprises." Similar to the inclusion of nightclubs and casinos in the same restricted industry, regulators at that time viewed cryptocurrency as a "high-risk, unauthorized field."

At that time, the strict regulation by the South Korean government had its inherent rationale. During the global ICO boom, several cases of "ICO fraud" and "fake projects" emerged in South Korea, causing thousands of retail investors to suffer losses.

For example, a company called Shinil Group launched the "Shinil Gold Coin," claiming that buyers would receive a massive amount of gold from a sunken Russian ship. Its tokens attracted approximately $53.7 million in investments from around 100,000 South Korean investors over more than a year. However, the company's CEO later admitted, "There is no solid evidence that anything of value was on the ship," and this ICO scam resulted in losses of at least $8 million for over 2,600 investors.

Similar incidents occurred frequently, involving amounts ranging from hundreds of thousands to millions of dollars, exacerbating the negative perception of "crypto speculation" among the public and the government. This became one of the main reasons for the tightening of regulations in South Korea, marginalizing the virtual asset industry.

It is worth noting that while crypto-related startups were not completely banned at that time, being listed as a restricted industry carried a label of high risk and distrust. Additionally, due to a lack of tax benefits, loan guarantees, and policy funding support, they were at a clear disadvantage compared to industries like artificial intelligence and biomedicine.

According to data from Tracxn, as of July 23 this year, only one new startup was established in South Korea's blockchain technology sector, while in 2018, 170 blockchain technology startups were founded, marking the highest number of startups established in the past decade. Furthermore, over a hundred blockchain technology startups were established during the crypto bull markets of 2021 and 2022, when the industry still had momentum. Number of companies established in South Korea's blockchain technology sector year-on-year

Additionally, by July 2025, South Korean blockchain technology companies had raised $13.3 million in four rounds of equity financing, while during the same period last year, they had raised $32.3 million in 17 rounds of financing—a year-on-year decrease of 58.82%.

Motivation for New Policy: Improved Regulatory Framework and Digital Asset Trends

In the official announcement released by the Ministry of SMEs and Startups, it was clearly stated that the newly revised "Implementation Order of the Special Act on Risk Enterprises" aims to establish a digital asset ecosystem that aligns with global trends, laying the foundation for cultivating innovative industries. On the other hand, it seeks to collaborate with financial authorities to establish a transparent market order and prioritize user protection. These two points address the increasingly intense global trend of virtual assets and the necessity for regulation and investor protection in the cryptocurrency market.

The key figure behind this amendment, Minister of SMEs and Startups Hong Chang-sook, believes that this regulatory reform aims to align South Korea with global digital asset trends and ensure future growth engines. She stated, "We will concentrate policy efforts to create a transparent and responsible ecosystem, allowing venture capital to flow smoothly and support the development of emerging industries." Minister of SMEs and Startups Hong Chang-sook

Thus, it is evident that this policy relaxation is not only due to the significant enhancement of the global status of the digital asset industry but also closely related to South Korea's increasingly mature regulatory environment. In 2021, South Korea revised the "Specific Financial Information Act," introducing a reporting system for virtual asset companies, and virtual asset service providers were subjected to AML/KYC obligations similar to those of financial institutions. The "User Protection Act for Virtual Asset Users," effective in 2024, grants financial regulatory authorities substantial supervision, inspection, and sanctioning powers, along with a series of specific obligations to protect user assets and prevent improper transactions.

The revisions of these two key laws fill the legal and regulatory gaps in "anti-money laundering supervision" and "user protection/market order," shifting from the original policy logic of "no regulation leading to a blanket ban" to a situation where existing regulatory capabilities are sufficient to support the industry.

Lifting the Ban: South Korean Crypto VC May Welcome a Spring

The lifting of the restriction order will undoubtedly inject new vitality into South Korea's crypto industry.

Crypto startups will find it easier to obtain domestic venture capital and government support, reducing financing costs and difficulties, creating new early-stage financing opportunities in areas including DeFi and blockchain infrastructure, and accelerating the growth of the domestic blockchain industry while expanding its overseas influence.

For South Korean crypto VC firms, they will also be able to unleash their potential, possibly deploying capital more aggressively and expanding investments in early-stage DeFi, blockchain infrastructure, and foundational projects. Notable VCs to watch include:

Hashed, one of the most influential and publicly focused early-stage VCs on blockchain/crypto in South Korea, headquartered in Seoul with a presence in Silicon Valley, Singapore, and other locations. Hashed has long been involved in significant global and local projects (its website and portfolio page list chains/projects like Aptos and Injective), while also organizing hackathons and ecosystem-building activities in South Korea, making it a crucial capital driver for the South Korean Web3 ecosystem and a model of "community-investment" integration.

Dunamu & Partners, an investment subsidiary established by Upbit operator Dunamu, has a publicly available large-scale external investment portfolio, covering blockchain/FinTech and a broader range of tech startups. Since Dunamu itself is a leading exchange operator, it may provide market liquidity support for projects as a strategic investor.

Kakao Ventures, a venture capital firm associated with the Kakao series, has long been involved in strategic investments in blockchain and payment scenarios, leveraging Kakao's traffic and Kaia ecosystem to provide traffic, foundational chains, and commercialization pathways for invested projects. For on-chain projects looking to establish themselves in South Korea, the Kakao series represents important strategic capital and ecosystem entry points.

Additionally, South Korea's financial system and large tech conglomerates are accelerating their layout in the crypto field. The bank and institutional investment platform KB Investment can leverage its financial strength, compliance, and risk control capabilities to provide the institutional capital and channel resources needed for the long-term growth of invested companies; while Samsung's strategic investment department, Samsung Next, is known for its industry-grade technology and market synergy, providing technical endorsement, global resources, and ecosystem-level cooperation opportunities for blockchain infrastructure and application projects.