ContributionPillars of pax crypto: What global regimes teach us about investor protection

Lee Hae-boong, head of Upbitcare / Courtesy of Dunamu

The digital asset market stands at a crossroads, transitioning from the shadows of an unregulated fringe into the mainstream of digital finance. Across the globe, this paradigm shift is being codified into law. The European Union has entered full implementation of its comprehensive Markets in Crypto-Assets Regulation (MiCA). In the U.S., following the enactment of the GENIUS Act governing payment stablecoins, the U.S. Senate is finalizing the proposed Digital Asset Market Clarity Act. Meanwhile, Korea is accelerating its second-stage legislation — the foundational Digital Asset Basic Act — to complement its initial Virtual Asset User Protection Act.

Moving beyond regulatory fragmentation, these global legal frameworks converge toward a singular destination. At the core of this movement is the clear establishing of a tailored digital asset investor protection framework, mirroring the historical lessons learned in traditional regulation on capital market activities. To foster a sustainable, credible digital asset ecosystem, these global legal regimes and rules are anchored by three indispensable defensive pillars.

Information asymmetry

The bedrock of traditional securities law is comprehensive statutory disclosures — the very engine that enables informed investment decisions. For too long, severe information asymmetry has been a chronic pathology within the crypto ecosystem. To cure this systemic imbalance, emerging global standards impose rigorous, transparent disclosure mandates upon both digital asset originators and the centralized exchanges that facilitate their trading.

Under both the EU's MiCA and the proposed Clarity Act in the U.S., issuers are statutorily required to submit a comprehensive crypto-asset prospectus, widely known as the white paper, which details the asset's technical architecture, total supply, liquidation schedules and underlying risk factors.

The key here is to codify white paper disclosures and strengthen legal liability for statements of material information. If false or deceptive information is provided, or material information is omitted, causing losses to investors who relied on it, the issuer should bear full civil liability for damages. Crucially, this legal evolution includes an ironclad declaration that any contractual clauses attempting to waive or exclude this statutory civil liability are legally null and void.

Centralized exchanges are similarly bound. They are held jointly liable with the originator to provide real-time disclosures regarding circulating supply fluctuations and critical shifts in network governance. The law effectively replaces the naive crypto maxim of "Trust the Code" with a fundamental principle of sound finance: "Trust the Legally Accountable Disclosure."

Protecting whistleblowers

Once an asset enters secondary market, transparency becomes directly synonymous with market integrity. Global regulatory standards categorize covert market manipulation, insider trading via material nonpublic information and fraudulent schemes as egregious acts of market abuse, mandating a punitive stance equal to legacy securities fraud enforcement.

The universal blueprint requires digital asset exchanges to implement robust, continuous market surveillance systems to identify anomalous, manipulative patterns. Bad market actors who violate the requirements, and intermediaries who facilitate these abuses, face severe criminal prosecution, matched with aggressive statutory mechanisms designed for the mandatory disgorgement of ill-gotten gains.

However, due to the borderless and pseudo-anonymous nature of blockchain networks and technology, catching every instances of on-chain or off-chain collusion solely through a regulator's external surveillance grid is an impossible task. Consequently, alongside the expansion of appropriate regulatory sanctioning powers, a robust regime for the protection of whistleblowers has become an absolute necessity.

By legally guaranteeing the anonymity of identity, strictly prohibiting any form of retaliation and offering unprecedented financial bounties tied to recovered illicit funds, regulators can effectively weaponize internal informants to dismantle corrupt cartels from within.

Safeguards for digital asset custody

When a retail investor transfers assets to an exchange or a third-party custodian, they confront their most acute systemic threat: intermediary’s moral hazard and insolvency. The catastrophic downfall of platforms like FTX left behind an undeniable legal lesson.

Investor protection can only be achieved if customer funds are legally mandated to be held in completely ring-fenced, segregated accounts, strictly detached from the intermediary's corporate balance sheet. Legal frameworks must explicitly guarantee an insolvency safe harbor. In a liquidation, bankruptcy or corporate resolution proceeding, these segregated digital assets must be treated definitively as customer property, meaning they are completely insulated from the insolvency estate and cannot be cannibalized to satisfy the claims from general creditors. They must be distributed back to the investors as an absolute priority. If this safe harbor is not explicitly written into statutory provision, the protection of retail investors remains an illusion.

Simultaneously, as demonstrated by the Keep Your Coins Act embedded in the proposed Clarity Act, modern regimes preserve the foundational ethos of blockchain by protecting private property rights — specifically preventing the government from restricting the citizen's right to utilize noncustodial, self-hosted wallets for lawful transactions.

Meanwhile, the proposed law balances this digital right of liberty by forcing regulated brokers to provide explicit, mandatory prior disclosures. Investors must be clearly notified that these assets, while segregated, do not enjoy the traditional backing of investor insurance funds, such as the Securities Investor Protection Corporation or the Federal Deposit Insurance Corporation. Safe asset segregation, combined with transparent and preemptive risk disclosures, forms the bedrock that empowers retail investors to protect themselves under the doctrine of responsible investment.

Trust

Digital assets, including payment stablecoins, are fundamentally a new layout of infrastructure in the era of digital finance. Their long-term, sustainable growth can only flourish within a strong, clear and predictable regulatory framework. A dense web of legal requirements is not a shackle designed to suffocate technological innovation; rather, it is the essential architecture required to build a trusted, level playing field where massive institutional capital and the general public can participate with confidence.

As regulatory harmonization crystallizes among the world's financial superpowers, Korea must act decisively. Elevating our domestic legal infrastructure to match these sophisticated, tailored protection mechanisms for the digital asset investors is the only way to ensure the nation is not marginalized in the global digital financial supremacy. Capturing this golden time is not merely a policy preference — it is an urgent economic imperative.

Lee Hae-boong is the head of Upbitcare, a professional service established by Dunamu to protect digital asset investors and provide market education