Pioneer to outsider: Lucentblock CEO fights for survival in Korea's STO market

An unprecedented investment boom swept the country during the COVID-19 pandemic, fueled by abundant liquidity. Amid the frenzy, a new investment method known as "fractional investing" quickly gained traction.

The emerging industry attracted a wave of entrepreneurs who helped shape its standards and practices. Among them was Lucentblock CEO Huh Se-young.

His platform allowed investors to buy and sell fractional stakes in properties worth tens of billions of won. Since launching the business in 2018, he has attracted 500,000 customers and raised approximately 30 billion won ($22.65 million) through the platform.

While many players exited the industry amid an investment slump and regulatory intervention, Huh stayed the course. He has seen three presidents and six finance ministers come and go.

Huh navigated regulatory reviews and put investor protection safeguards in place under the government's sandbox program. He also persuaded financial institutions to adopt a structure in which trust companies would hold the underlying real estate assets and issue beneficiary certificates, while his startup would oversee investor recruitment and trading.

The business model he pioneered has since become the industry standard for security token offerings (STOs).

Huh believed that meeting regulatory requirements would eventually pave the way for Lucentblock to become a fully licensed operator. The government had also pledged to foster the STO market.

But last fall, an unexpected hurdle emerged. Financial regulators introduced a competitive licensing process that would limit the number of authorized trading platform operators to just two, with applicants selected based on their evaluation scores.

The NXT consortium, comprising Nextrade, Shinhan Securities and Musicow, entered the race, alongside the KDX consortium, formed by the Korea Exchange, Koscom and more than 20 securities firms.

Lucentblock suddenly found itself competing against industry heavyweights armed with vast capital resources and extensive business networks. In February this year, the NXT and KDX consortia received preliminary approval, as widely expected.

After failing to secure approval, Lucentblock suspended new transactions, maintaining only dividend payments and asset management services for existing customers. Criticism mounted that the KRX and NXT consortia, neither of which had a track record in the business, were muscling in on a market pioneered by startups.

"The FSC (Financial Services Commission) limited the number of operators to a maximum of two through a briefing rather than a formal resolution," Huh said. The FSC consists of nine members, and approval requires a majority vote from those present.

Huh also claimed that the FSC had failed to comply with a special act, intended to guarantee exclusive operating rights to innovative financial service providers such as Lucentblock once they have demonstrated new technologies in the market.

Yet a glimmer of hope emerged during this year's National Assembly audit. Seven lawmakers from both the ruling and opposition parties raised concerns over the matter, with some calling for Lucentblock to be given another opportunity to apply.

Huh vowed not to give up. He said he would challenge the procedural irregularities and seek additional licensing approval as soon as possible.

"We are absolutely not asking for special treatment, nor are we asking for existing operators' licenses to be revoked," he said. "We are simply asking for a basic opportunity to compete fairly in the market."