STO market set for takeoff amid 3-way race for trading platform license
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The race for licenses to operate over-the-counter trading platforms for fractional investments has narrowed to three contenders, with financial authorities working to select two winners by the end of this year, officials said Friday.
As the National Assembly moves forward with legislation on security token offerings (STOs), which has garnered bipartisan support, the market is expected to officially take off next year.
Fractional investment refers to dividing ownership of real-world assets such as real estate or artwork, or the rights associated with them, into multiple shares, allowing investors to co-own and share profits collectively.
An STO applies blockchain technology to digitize ownership or profit rights of both tangible and financial assets in the form of securities. In essence, STOs integrate fractional investments into the formal financial system through blockchain infrastructure, for example, enabling a single property to be divided into several ownership units, each issued as a tradable token.
The STO sector is considered one of the most promising markets for future growth. A report released last year by Samil PwC Business Research projected that the market capitalization of Korea’s STO market will expand from 34 trillion won ($23 billion) in 2024 to 367 trillion won by 2030, representing an average annual growth rate of about 49 percent.
According to the Financial Services Commission (FSC), the country’s top financial regulator, three consortiums — KDX, NXT and Lucentblock — have applied for preliminary approval to establish over-the-counter trading platforms for fractional investments.
The KDX consortium, the largest of the three, is led by the Korea Exchange and includes Kiwoom Securities, Kyobo Life Insurance, Kakao Pay Securities and Heungkuk Securities.
The NXT consortium, whose largest shareholder is Nextrade, an alternative trading platform, includes Shinhan Securities, Hana Securities, Hanyang Securities and Eugene Investment & Securities. Musicow, a music copyright trading platform, is also part of the group.
The Lucentblock consortium consists of Lucentblock, a company specializing in real estate fractional investment, along with other investors including a venture investment fund.
The FSC plans to grant preliminary approval to up to two operators by the end of this year, following reviews conducted jointly with the Financial Supervisory Service and an external evaluation panel.
The legislative process for the STO framework is also expected to be completed within the year.
Currently, about five STO-related bills are pending, including those proposed by Rep. Min Byoung-dug of the ruling Democratic Party of Korea and Rep. Kim Jae-sub of the main opposition People Power Party.
“The STO bill is not a matter of contention. I believe it’s essentially ready for passage,” Min said during a recent parliamentary discussion.