Korea's STO market can learn from Japan's six-year head start [Crypto Insight]

Lee Sung-hoon, CEO of Bitplanet

The Korea Herald presents "Crypto Insight," a column featuring expert perspectives on digital asset policy, technology and markets. It offers in-depth analysis of digital asset market conditions, the latest global developments and the trend toward institutional adoption — topics of keen interest to readers. "Crypto Insight" aims to serve as a compass for clearly understanding complex market structures and gauging the future value of digital assets.

When security token offerings, or STOs, come up for discussion, the United States and Europe are the countries most often cited. But the practical model Korea should look to is Japan. Unlike the United States, which relies on case law and regulatory enforcement, or Europe, which created entirely new rules, Japan folded STOs into its existing Financial Instruments and Exchange Act. That approach closely mirrors Korea's own design. Korea is incorporating STOs as a new "issuance and distribution format" through amendments to the Act on Electronic Registration of Stocks, Bonds, Etc. and the Capital Markets Act. The resemblance extends further: trust companies and securities firms lead issuance in both countries, and fractional-investment demand concentrates in real estate. Both markets also place investor protection at the center of policy.

Japan's legislation came six years before Korea's. Japan enforced its revised Financial Instruments and Exchange Act in May 2020. It classified rights with Type 2 securities characteristics — which carried looser disclosure obligations — as "electronically recorded transferable rights" once tokenization enabled electronic transfer. It then applied regulations equivalent to those governing Type 1 securities.

The first lesson from Japan's six years of operating its STO regime is the importance of tax rules and detailed operating regulations. Publicly offered ST issuance in fiscal year 2024 totaled 46.4 billion yen ($302 million), more than half less than the previous year. BOOSTRY pointed to financial institutions temporarily suspending issuance to assess system impacts after a September 2024 request to reform trust taxation as the main cause. The issuance market only began to recover after Japan's tax reform outline was announced that December.

Fiscal year 2025 issuance in fact surged roughly 3.6-fold from the previous year to 165 billion yen, while cumulative issuance also doubled year-on-year to 333.3 billion yen. A prominent example is MUFG Group's 22.4 billion yen public offering of real estate ST backed by Dojima Hamatower in Osaka. In July, Daiwa House Group also completed a 7.7 billion yen public offering backed by logistics facilities.

The second lesson concerns securing liquidity in the secondary market. Japan built its issuance and distribution infrastructure in parallel, opening a dedicated secondary market called START in December 2023. Even so, only eight securities trade there, with a combined market capitalization of just 33.6 billion yen — still marginal next to cumulative issuance. Compared with the pace of growth in the STO issuance market, liquidity and depth in the secondary market remain shallow.

Taking Japan's trial and error as a cautionary lesson, Korea has moved to respond preemptively, focusing on firming up detailed rules before its own regime takes effect. The Financial Services Commission recently laid out a three-phase roadmap for STO policy. Under the plan, Korea will tokenize institution-only private money market funds, trust-based unlisted shares, and publicly offered fractional-investment securities when the new regime takes effect in February 2027. It will then check market stability and demand before expanding the scope to general public offering securities. Finally, it will build out on-chain settlement infrastructure that uses stablecoins as a means of payment.

Alongside this, work is also underway to complete secondary-market infrastructure early. The FSC granted preliminary authorization for over-the-counter brokerage of beneficiary certificates to the NXT consortium and Korea Exchange in February. It then proposed capping retail investors' net purchases per exchange at 100 million won ($74,600). In effect, Korea is preparing to launch an over-the-counter exchange and design its distribution system at the same time.

Korea is a latecomer to the STO market, but it gets to take its first steps having already absorbed the lessons of Japan's six years of trial and error. With the broad legal and policy framework now in place, the priority is to finalize detailed rules quickly so that issuance, distribution and settlement can proceed without friction. As the rollout advances in phases, keeping policy predictable — in step with changes such as the legislation of stablecoins — will also be essential. Japan's six years amount to a useful "answer key" of past mistakes that Korea does not have to repeat.

kyoung@heraldcorp.com