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Gov't faces backlash over STO exchange licensing amid startup exclusion concerns
Lucentblock CEO and co-founder Huh Se-young speaks during a press briefing in Seoul, Monday, to outline the company’s position on the licensing of over-the-counter trading platforms for security tokens. Yonhap
By Jun Ji-hye
The Financial Services Commission (FSC) is facing growing backlash over its preliminary approval process for operators of over-the-counter trading platforms for security tokens, as Lucentblock, a startup that operates a real estate fractional investment platform, has strongly objected after being placed at risk of exclusion, industry officials said Tuesday.
The startup said it has been “driven to the edge of shutdown by entrenched interests,” while critics warn that sidelining startups that have built expertise over the years under government-backed nurturing policies would directly contradict the Lee Jae Myung administration’s commitment to promoting innovative sectors.
With bipartisan-backed legislation on security token offerings (STOs) advancing in the National Assembly, the market is poised for a formal launch this year. STOs integrate fractional investments — shared ownership and profit rights in real-world assets such as real estate and art — into the formal financial system through blockchain infrastructure.
According to industry insiders, the FSC shortlisted two consortia — the KDX consortium led by the Korea Exchange and the NXT consortium led by alternative trading platform Nextrade — as candidates for preliminary approval at a Securities and Futures Commission meeting on Jan. 7.
The country’s top financial regulator is scheduled to hold its regular meeting Wednesday to finalize the decision. If the outcome remains unchanged, Lucentblock will be excluded and could face closure.
The Daejeon-based startup has operated a real estate fractional investment platform since 2018 after being designated an innovative financial service under the FSC’s regulatory sandbox program. The platform has since built a user base of around 500,000 and facilitated the issuance and distribution of assets totaling 30 billion won ($20 million).
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Lucentblock CEO and co-founder Huh Se-young questioned the fairness of the approval process while also raising concerns over possible technology misappropriation.
“I felt abandoned after serving as a government test case. Excluding Lucentblock runs counter to the original intent of the regulatory sandbox, which was designed to foster and protect innovative startups,” Huh said at a press conference Monday. “It is deeply problematic for a company that has operated the business as a best-practice example for four years to be denied even the chance to continue operating.”
The startup has submitted a formal complaint alleging unfair trade practices, citing possible violations of the Monopoly Regulation and Fair Trade Act. It claims that neither the KRX consortium nor the NXT consortium underwent a merger review despite meeting the legal thresholds. Under fair trade law, a merger review is required if at least one party has total assets or sales of 2 trillion won or more and another party involved exceeds 300 billion won.
Separately, Huh alleged that Nextrade approached his company under the pretext of discussing potential investment or consortium participation and, after signing a nondisclosure agreement, obtained access to sensitive internal information before filing its own license application for the same business area. According to Huh, the materials shared included financial statements, the shareholder registry and business plans.
Nextrade rejected the allegations, saying that none of the documents it received contained confidential information and that it neither misappropriated technology nor copied business ideas during the licensing process.
The situation has fueled broader concerns that startups which helped build the STO ecosystem under government authorization are being pushed aside just as the sector moves toward formal regulation. Critics argue that this contradicts the Korean president's call to create a 40 trillion won venture investment market and expand support for startups.
“Lucentblock was the first company in Korea to test and validate a real estate fractional investment platform. Excluding startups that led the market while bearing early-stage risks could severely damage confidence in the FSC’s innovation agenda,” Rep. Kwon Chil-seung of the ruling Democratic Party of Korea wrote on Facebook. He served as the minister of SMEs and startups from 2021 to 2022.
“If the benefits of institutionalization are captured primarily by large capital and institutional players, the regulatory sandbox risks being reduced to little more than a market-testing tool. Greater policy consideration is needed for innovative companies that ventured first into areas marked by legal and institutional uncertainty,” he added.