Barely five months after Zeniex was launched, the South Korean cryptocurrency exchange is closing shop.
The exchange, which was unveiled in May, has disclosed that it will cease all operations on November 23. Zeniex blamed the development on the problems facing its ZXG token.
“… with recent issues regarding ZXG, we have gone through great deliberation both internally and externally,” read a statement from the exchange. “As a result, we have come to the conclusion that continuing to operate such service will be difficult.”
Withdraw or Lose
Already, trading in the ZXG token was ended on November 9. Holders of the token will now have to accept compensation in Ethereum starting on November 12, according to a second notice released by Zeniex. For all other cryptocurrency assets, users have been urged to withdraw them prior to the termination of the service.
Zeniex, which is a joint undertaking of Chinese and South Korean entities, had also launched South Korea’s first cryptocurrency fund, the ZXG Crypto Fund 1, and this seems to have been the root of the problem. Late last month, South Korea’s Financial Supervisory Service (FSS) and the Financial Services Commission (FSC) urged investors to be cautious about virtual currency funds saying that the Capital Markets Act safeguards were not applicable to such assets.
According to Business Korea, Zeniex’s crypto fund was not registered with the FSS and neither had the regulator audited the fund’s financial investment guide. This was in violation of the law since South Korea’s Capital Markets Act requires all funds to undertake registration with the FSS. Funds that collect from general investors must also file securities reports.
Additionally, the FSC had not given approval to the trustee, sales company or the management company. By law, the asset management firm in charge of managing the fund as well as the company in charge of selling to investors must get the financial approval of regulators. And for the sake of protecting investors, regulations such as meeting the minimum capital requirements and avoiding conflicts should also be observed.
In the recent past, the environment for the cryptocurrency sector in South Korea has become somewhat hostile. As CCN reported in October, the South Korean government declined to certify cryptocurrency and blockchain firms as venture firms thereby denying them benefits and financial incentives accorded to startups such as tax breaks.
Instead, cryptocurrency and blockchain startups were lumped together with the entertainment, gambling and bar industry. This resulted in the Korean Bar Association urging authorities to establish a legal framework to guide the blockchain and cryptocurrency sector in order to protect investors while not stifling innovation.
“We urge the government to break away from negative perceptions and hesitation, and draw up bills to help develop the blockchain industry and prevent side effects involving cryptocurrencies.” the president of the association of legal practitioners in South Korea, Kim Hyun, was quoted as saying at the time.