The South Korean city of Busan wants to become a blockchain headquarters. Did everyone get the memo?

Busan, South Korea’s second-largest city, launched its blockchain initiative four years ago to pave the way for the growing industry, hoping to attract technology, jobs and investment and break away from its reliance on maritime trade and tourism.

The problem is that the news doesn’t seem to have reached the blockchain sector.

Busan, home to one of Asia’s leading film festivals and home to 3.3 million people, was declared a blockchain special zone in July 2019 under the administration of former President Moon Jae-in. This allowed the city to host blockchain projects that would face restrictions and bureaucracy elsewhere in the country.

Examples include local company Coinplug, which is 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 e-wallet for the citizens of Busan.

However, the Busan Chamber of Commerce conducted a survey of 465 blockchain companies in the country in July this year and found that more than 48% were unaware of Busan’s status as a blockchain-friendly zone. Another 21% said they’d heard about the project but didn’t know exactly what it does.

This disinterest also appears to be reflected in the usage 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, associate professor of global entrepreneurship at Seoul’s Hanyang University and blockchain specialist.

“I predicted this failure to some degree because only some services and companies using blockchain technology benefited from the relaxed regulations, while companies using crypto were excluded,” Lee said. He added that South Korea’s negative stance on crypto at the time likely influenced this approach.

switching strategy

The city, located on the southeastern tip of the Korean peninsula about 325 kilometers south of the capital Seoul, is now changing its strategy and has signed deals with three global cryptocurrency exchanges: Binance, FTX and Huobi in the last two months. It plans to build the country’s first city-backed digital asset exchange.

“We will build a new growth engine for the local economy and transform it into a global digital financial hub,” Busan Mayor Park Heong-joon said last month when signing the partnership with Binance, the world’s largest cryptocurrency exchange.

He said the city wants to attract more blockchain talent and is offering tax breaks as part of the package.

Hanyang University’s Lee 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 the right direction and strategy now,” Lee said.

Busan needs a revitalization plan. The Chamber of Commerce said Thursday that the number of local businesses with annual sales of more than 100 billion Korean won ($70 million) hit an all-time low of 27 last year, or half of the 55 recorded in 2008 .

What’s next?

While Busan has signed deals with global exchanges to build its own city-backed crypto marketplace, details on how the local exchange will operate, what it will trade, and the amount of investment involved are hard to come by.

An official from the city’s blockchain innovation team, who declined to be named, told Forkast that it’s too early to give details of what the exchange will look like.

Lily Zhang, chief financial officer of Busan’s recent signer Huobi Global, was a little more accommodating.

“We are unable to reveal too many details about the exchange, but we do know that it intends to launch a range of stablecoins and stablecoin-related trading pairs,” Zhang said in an email response to questions.

“Busan’s blockchain regulation-free zone provides a favorable environment for the development of the latest digital financial technologies. This includes applications in industries such as tourism, logistics, lifestyle services and more,” Zhang said.

“Such applications are not directly connected to cryptocurrency exchanges, but they increase general awareness of blockchain technology and could lead to further integrations later,” she added.

Huobi has announced that it will bring 1,500 overseas blockchain experts to Busan, while the other partners, Binance and FTX, have said they will provide technology and infrastructure support for the development of the Busan exchange.

liquidity

Leon Foong, Binance’s Asia-Pacific boss, said Busan could benefit from the liquidity provided by global exchanges.

“And when it comes to global liquidity, we’re fortunate to be in a position where we actually have one of the largest global liquidity pools,” he told Forkast in an interview.

In turn, exchanges see opportunities to re-enter one of the most attractive crypto markets that they would have left because of stricter regulations, said Hanyang University’s Lee. “The partnerships meet the needs of both sides,” Lee said.

Binance and FTX both exited the South Korean crypto market last year due to stricter rules, while Huobi Korea stayed but failed to meet the requirements to provide fiat-to-crypto services and therefore remains a token-to-token exchange.

All three exchanges have announced opening offices in Busan, but Binance and FTX are not expected to operate crypto exchanges.

However, Binance’s Foong did not rule out this option in the future. “We’re always exploring, but we want to do it the right way,” he said.

When Busan signed its partnership agreement with Huobi this month, Mayor Park said in a statement that he hopes the company will “publicize Busan’s strong environment and support for digital finance so that we can attract more blockchain talent to our city.” “.

To that end, Huobi said it will be the main sponsor of Busan Blockchain Week 2022, which starts on October 27. This meeting could be a key event to verify that the message that Busan is open for blockchain and crypto deals is loud and clear now.

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