Busan, South Korea’s second-largest city, launched its blockchain initiative four years ago to put out the welcome mat for the growing industry, hoping to attract technology, jobs and investment and shift away from a reliance on seaborne trade and tourism.
Problem is, the message didn’t seem to reach the blockchain sector.
Busan, with a population of 3.3 million people and home to one of Asia’s leading movie festivals, was designated a special blockchain zone in July 2019 under the administration of former president Moon Jae-in. That allowed the city to host blockchain projects that would face restrictions and red tape elsewhere in the country.
Examples include local firm Coinplug that’s developing a blockchain-based public safety reporting app, and in 2020, the city released B PASS — a blockchain-based mobile app and all-in-one ID and electronic wallet for Busan citizens.
However, the Busan Chamber of Commerce ran a survey in July this year of 465 blockchain companies in the country and found more than 48% were unaware of Busan’s status as a blockchain friendly zone. Another 21% said they had heard of the project, but didn’t know in detail what it does.
This lack of interest also seems reflected in the use of B PASS, which has been available for two years but has only around 10,000 downloads, according to local media.
Busan’s blockchain achievements have not been impressive, said Lee Jang-woo, an adjunct professor on global entrepreneurship at Hanyang University in Seoul and a blockchain specialist.
“I predicted this failure to some degree because only some services and companies using blockchain technology enjoyed the relaxed regulations, while businesses using crypto were excluded,” Lee said. He added that South Korea’s negative attitude toward crypto at the time probably influenced that approach.
The city — which sits on the southeastern tip of the Korean Peninsula, about 325 kilometers south of the capital, Seoul — is now changing its strategy and signed deals in the last two months with three global cryptocurrency exchanges: Binance, FTX and Huobi. The plan is to build the country’s first city-backed digital asset exchange.
“We will build a new growth engine for the local economy and make it a global digital finance hub,” Park Heong-joon, the mayor of Busan, said at last month’s partnership signing with Binance, the world’s biggest cryptocurrency exchange.
He said the city wants to attract more blockchain talent and is offering tax breaks as part of the package.
Lee at Hanyang University said the move to bring cryptocurrencies into the mix makes sense.
“Part of that is building the digital asset exchange. So I think [the city] has now got the right direction and strategy,” said Lee.
Busan does need a revitalization plan. The Chamber of Commerce on Thursday said the number of local businesses last year with an annual revenue of more than 100 billion Korean won (US$70 million) hit an all-time low of 27, or half the 55 recorded in 2008.
While Busan has signed deals with global exchanges to build its own city-backed crypto market place, details on how the local exchange will function, what it will trade, and the size of the investments involved are difficult to come by.
An official in the city’s blockchain innovation team, who declined to be identified by name, told Forkast that it is too early to give details about what the exchange will look like.
Lily Zhang, the chief financial officer of Busan’s latest signee Huobi Global, was a little more forthcoming.
“We aren’t in a position to reveal too many details about the exchange, but we know that it does intend to roll out a line of stablecoins and stablecoin-related trading pairs,” Zhang said in an email response to questions.
“Busan’s blockchain regulation-free zone offers a conducive environment to develop the latest digital financial technologies. This covers applications in industries ranging from tourism to logistics, lifestyle services and more,” Zhang said.
“Such applications aren’t directly connected to cryptocurrency exchanges, but it does increase overall awareness of blockchain technology and could lead to more integrations further down the line,” she added.
Huobi has said it will bring 1,500 blockchain professionals from overseas to Busan, while the other partners, Binance and FTX, have said they will provide technology and infrastructure support to develop Busan’s exchange.
Leon Foong, the Binance head for Asia Pacific, said Busan can benefit from the liquidity provided by global exchanges.
“And when it comes to global liquidity, we’re fortunate enough to be in a position where we actually have one of the largest global liquidity pools,” he told Forkast in an interview.
In return, the exchanges see opportunities in moving back into one of the most attractive crypto markets that they had left because of stricter regulations, said Lee at Hanyang University. “The partnerships fulfill needs on both sides,” Lee said.
Binance and FTX both exited the South Korean crypto market last year as a result of tougher rules, while Huobi Korea remained but failed to meet the requirements to provide fiat-to-crypto services and hence remains a token-to-token exchange.
All three exchanges said they will open offices in Busan, but Binance and FTX are not expected to operate crypto exchanges.
However, Foong at Binance didn’t rule out that option for the future. “We’re always exploring, however, we want to do it in the right way,” he said.
When Busan signed its partnership agreement with Huobi this month, Mayor Park said in a statement he hoped the company “will spread the word on Busan’s strong environment and support for digital finance, so that we can draw more blockchain talent to our city.”
To that end, Huobi said it will be the main sponsor for Busan Blockchain Week 2022, which starts on Oct. 27. That gathering could be a key event for checking if the message that Busan is open for blockchain and crypto business is now loud and clear.