Recommendations for the Globalization of the Korean STO Market
1. Introduction: A Revolution in Financial Capital Markets Brought by STO Legislation
On January 15, 2026, the South Korean capital market reached a historic inflection point. Following years of deliberation and anticipation, the amendments to the Electronic Securities Act and the Capital Markets Act finally passed the National Assembly’s plenary session. This marks the official entry of Security Token Offerings (STO) into the regulated financial system. Beyond the mere debut of a new investment product, this legislation signifies a momentous shift where the capital market adopts Distributed Ledger Technology (DLT) as core infrastructure and embraces a diverse array of non-traditional assets that were previously difficult to securitize.
The amended laws are scheduled for full implementation in January 2027, following a one-year grace period after promulgation. For financial institutions and fintech companies, the remaining year represents a "golden time" to refine business models and establish optimal system infrastructures. Strategic choices made during this period will determine market leadership in the digital asset space for decades to come.
2. Asset Innovation vs. Infrastructure Disconnection: Why the Korean STO Market Chose "Siloed Survival"
However, it is premature to celebrate. While the regulatory gates have opened, the pathways through which assets and capital flow remain obstructed by technical silos and fragmentation. The technological barriers erected by individual institutions are becoming massive dams that hinder liquidity. This section analyzes how the very freedom of issuance and distribution granted by legislation has paradoxically led to market fragmentation and examines the resulting structural limitations.
2.1 Legislative Passage: Freedom of Issuance and Distribution
The crux of the amendments to these two major acts lies in the official recognition of Distributed Ledger Technology (DLT) as a legal electronic registration ledger. Previously, securities were recognized only when recorded on the central servers of the Korea Securities Depository (KSD). Now, records of rights changes inscribed on a distributed ledger carry the same legal presumption of rights as traditional electronic securities.
The shift is anchored by two main pillars:
First, Freedom of Issuance: The amendment to the Electronic Securities Act established the Issuer Account Management Institution system. Qualified issuers can now issue security tokens directly and manage records of rights changes on their own distributed ledgers without going through traditional brokerage firms. This enables fractional investment providers and related enterprises to lower fundraising costs by operating their own blockchain nodes.
Second, Freedom of Distribution: Through the amendment of the Capital Markets Act, distribution regulations for non-standardized securities—such as Investment Contract Securities and non-monetary trust beneficiary certificates—have been overhauled. Notably, the creation of the OTC Trading Brokerage license allows for multi-party bilateral trading of security tokens in over-the-counter markets rather than just on formal exchanges. This provides the legal basis for various assets, including artwork, cattle, and music copyrights, to be tokenized and traded.
2.2 The Emergence of Issuer Account Management Institutions
The problem originates here. While the law allows qualified issuers to build independent distributed ledgers to ensure technical autonomy, it has inadvertently caused fragmentation. Given the legal liabilities issuers must bear in the event of hacking or system failure, it became a highly rational choice for them to build controllable, proprietary infrastructures rather than depending on third-party platforms.
2.2.1 The Issuance Market: Deeply Rooted Fragmentation
The period of legislative delay was a time of accelerated technical fragmentation. To preoccupy market leadership, companies formed alliances with partners sharing similar interests and pre-emptively built infrastructures. This preparation for institutional entry resulted in the proliferation of incompatible silos. As early as 2024, major securities firms moved beyond simple Memorandums of Understanding (MOUs) to build substantial proprietary systems for independent survival.
Shinhan Securities and SK Securities moved beyond simple cooperation to launch PULSE, a blockchain infrastructure project specialized for the financial sector, alongside Blockchain Global in 2024. This was a declaration of an independent path to preoccupy technical standards by creating a separate mainnet ecosystem.
The market split into two distinct factions: individual heavyweights and the Koscom Alliance. Led by Kiwoom Securities, Koscom partnered with eight firms—including Meritz, Daishin, Yuanta, BNK, DB, IBK, and iM Securities—to develop a joint platform and lead a standardized ecosystem. However, ultra-large firms with massive capital, such as Mirae Asset, Korea Investment, NH, and KB, completed their own systems and chose not to participate in the Koscom joint network, further solidifying their own silos.
Mirae Asset Securities, through the Next Finance Initiative (NFI) formed with SK Telecom and Hana Financial Group, completed joint infrastructure construction and system integration tests in 2024. They completed a massive, independent single network that does not mix with other alliances, waiting only for the law to take effect.
Ecosystems centered on distribution channels and content also solidified independently. Korea Investment Securities verified the technical integrity of "Korea Investment ST Friends" after completing system integration tests with KakaoBank and Toss Bank in 2024. NH Investment Securities also strengthened its proprietary closed ecosystem through the STO Vision Group, conducting Proof of Concept (PoC) tests with fractional investment firms throughout 2024.
Major players are now ready to become Issuer Account Management Institutions based on different tech stacks and blockchains. Because the law granted ledger management authority to issuers, each firm chose to build optimized systems to clarify liability and maximize efficiency for their specific products.
2.2.2 The Distribution Market: Prelude to a Three-Way Race
has further intensified. According to the Financial Services Commission (FSC) announcement in October 2025, three major camps are competing for preliminary licenses for Security Token OTC Exchanges (Distribution Platforms):
KDX: An alliance led by Kiwoom Securities, Kyobo Life Insurance, and KakaoPay Securities.
NXT Consortium: An alliance centered on Nextrade and Shinhan Securities.
Lucent Block: A startup-led camp that attracted investments from firms like Hana Securities.
This reflects the financial authorities' institutionalization of the principled separation between issuance and distribution to prevent conflicts of interest, and they are currently aiming to grant preliminary licenses from the Financial Services Commission (FSC) to two entities. That is, the distribution market will also be divided into a structure where multiple exchanges compete rather than being centralized into a single exchange.
Ultimately, the market is diverging into numerous incompatible private chains. While the law defines a distributed ledger as a ledger jointly managed and recorded by multiple participants, the reality is a collection of disconnected silos built for administrative efficiency and security by individual institutions.
3. Structural Inevitability: The Dilemma of Multiple Ledgers Born of Non-Standardization
To grasp the essence of the structural changes brought by STO legislation, it is necessary to closely contrast the system with the traditional capital market infrastructure we are familiar with—the stock market. The current technical fragmentation is not merely a temporary phenomenon occurring during the implementation phase; rather, it is a structural consequence arising from the fundamental difference between existing centralized systems and the technological goals of security tokens.
3.1 Single Ledger Efficiency vs. Multi-Ledger Fragmentation
In the traditional stock market, moving Samsung Electronics shares from Brokerage A to Brokerage B (inter-firm transfer) is remarkably simple. In the KRX (Korea Exchange) market, the delivery of securities is carried out through the book-entry transfer method at the Korea Securities Depository (KSD), while cash payments are processed through settlement banks. The reason these "inter-firm transfers" are processed almost in real-time is that the system only needs to change the owner's "tag" on a single, massive central server maintained by the KSD. Legally, this is known as a "Book-entry Transfer." This overwhelming efficiency is made possible because all players share a single, unified ledger.
In KRX Markets, delivery of securities is carried out by the method of book-entry transfer at KSD (Korean Securities Depository) and cash payments are carried out through settlement banks (Bank of Korea or commercial banks designated by KRX).
Introduction to Trading at KRX Stock Market 2011 - Source: KRX
Why, then, did the STO market abandon this efficient single-ledger model in favor of a complex multi-ledger structure? It was not simply to adopt the new technology of blockchain. It was due to the atypicality of asset rights that a standardized, uniform ledger cannot accommodate.
Stocks and bonds are standardized products with established, uniform rules for trading and dividends. The KSD server only needs to process these standard rules. However, the underlying assets for security tokens—such as artwork, cattle, and music copyrights—are non-standardized securities with vastly different conditions for exercising rights and profit distribution logic.
Music Copyrights: Require unique logic for the immediate settlement of royalties based on daily streaming data.
Real Estate/Artwork: Essential to have smart contracts that can reflect complex rights relationships, such as conditional profit distribution at the time of sale or value fluctuations of the underlying assets.
Attempting to house hundreds of these varying business logics on a single central server would inevitably restrict the design of innovative products. The intention behind financial authorities allowing the "Issuer Account Management Institution" was precisely to grant issuers the autonomy to design ledgers tailored to the specific characteristics of each asset.
The problem arises here. As each player built separate ledgers optimized for their own assets, the market as a whole ended up in a fragmented state lacking a common standard. Ultimately, as a result of sacrificing uniformity to accommodate asset innovation (non-standardization), we have inevitably entered an era of multiple ledgers speaking different languages.
3.2 The Galapagosization of the Korean STO Market
As a result of adopting the "Separation of Issuance and Distribution" principle for investor protection and embracing asset diversity, we are now faced with a market that is fragmented in both issuance and distribution. For a token issued on Brokerage A's proprietary chain to move to the KDX exchange, or for a token from Brokerage B's chain to be traded on the NXT exchange, a connection mechanism is required to verify trust and securely transfer data between ledgers using different protocols.
To resolve these issues and protect investors, the Korea Securities Depository (KSD) has taken on the role of managing the "Total Volume" across all distributed ledgers. To this end, KSD adopted a method of directly participating as a node in each issuer's distributed ledger to collect and verify data. While this was a necessary measure to fundamentally prevent total volume discrepancy accidents and ensure legal stability, it resulted in a technical trade-off regarding scalability, as every chain must now be connected individually.
As highlighted in reports by the Korea Capital Market Institute, the innovation of security tokens lies in overcoming time and space constraints and enhancing scalability. However, the current infrastructure prioritizes stability over openness, raising concerns that the Korean market may remain a closed "Galapagos" ecosystem.
Despite having completed its legal foundation, the Korean STO market now faces the risk of "liquidity arteriosclerosis" caused by technical silos. In the following chapter, we will closely analyze the technical structure of the infrastructure currently being pursued by KSD through its Request for Proposal (RFP).
4. Current Status Analysis: KSD’s Direct Connection Model and Its Costs
As previously observed, the market is already fragmented. The critical question now is how to manage these scattered ledgers. As the entity responsible for total volume management under the Electronic Securities Act, the Korea Securities Depository (KSD) launched its "Token Securities Test-bed Platform" project in 2025 to begin full-scale infrastructure verification.
The approach selected by KSD is a highly intuitive yet technically expensive Direct Node Participation model. By analyzing KSD’s Request for Proposal (RFP), we can examine the structural characteristics and inherent limitations of this model.
4.1 KSD’s Choice: Building Watchtowers in Every Silo
KSD’s approach prioritizes absolute control and oversight. Rather than simply monitoring the distributed ledgers (blockchains) established by issuers from the outside, KSD directly participates as a node in each respective chain to synchronize data in real-time.
According to the published RFP and architectural diagrams, KSD’s system consists of: ① the Total Volume Management System, ② the Node Deployment Management System, and ③ the Distributed Ledger System. The core feature is that KSD builds its platform by "directly participating as a node in all distributed ledgers in the market." In practice, this means KSD installs a dedicated total volume management node on Mirae Asset’s chain, Shinhan Securities’ chain, and every other issuer's infrastructure to directly synchronize data.
From an investor protection standpoint, this is a robust mechanism. Even if an issuer attempts to arbitrarily issue excess tokens (over-issuance) or manipulate the ledger, KSD can detect it immediately since it participates as a network member verifying transaction records. While this is considered the optimal choice for legal stability, the cost in terms of scalability is significant.
Participating as a direct node in multiple chains—each with different consensus algorithms and update cycles—not only increases operating costs but also poses risks of synchronization bottlenecks and latency. These technical hurdles can impede overall capital turnover in the market. As the number of market participants grows, the volume of nodes and data traffic KSD must manage will increase continuously, ultimately undermining the operational efficiency of the central management system.
4.2 The Dilemma of "N" Standards: KSD as the Universal Translator
The challenge is exacerbated by the sheer diversity of blockchains in the market. In the "Total Volume Management Node Construction" requirements of the RFP, KSD specified technologies such as Hyperledger Besu, Hyperledger Fabric, and Klaytn(Kaia) to reflect current market conditions. This effectively requires KSD to function as a "universal translator.”
Brokerage A (Hyperledger Fabric): KSD must build a Fabric node and communicate via its specific SDK.
Brokerage B (Klaytn/EVM): KSD must build an EVM-compatible node and utilize RPC communication.
Fractional Investment Firm C (Proprietary Chain): KSD must install yet another specialized node.
While this may be manageable with a few participants, the burden changes as the market matures and the number of issuers grows into the dozens. KSD would then need to maintain and update dozens of nodes, each speaking different "languages." Managing a centralized system where consensus algorithms, update cycles, and data standards are all fragmented leads to an exponential increase in administrative costs. Ultimately, KSD falls into a structural dilemma where it must develop complex gateways and interfaces individually for every different type of distributed ledger.
4.3 Limitations of Total Volume Management: Audit is Possible, but Mobility is Difficult
A more fundamental issue is that the current system is focused on "verifying total volume" rather than "facilitating asset mobility."
The primary objective of the KSD system is to "collect transaction information recorded on distributed ledgers to ensure the total issued volume matches the total circulation volume." While optimized for this auditing function, a "Bridge" function—which allows assets to move from Ledger A to Ledger B—is not a core part of the design.
However, market demand is different. Just as stock investors can freely move their shares between brokerages via inter-firm transfers, security token investors need the ability to move their assets from Brokerage A to Brokerage B in search of better liquidity or services. They also require access to various financial products based on those assets.
Under the current structure, moving a token from an account at Brokerage A to one at Brokerage B requires a "Burn-and-Mint" process rather than a direct inter-chain transfer. Ensuring Atomicity (the characteristic where a transaction either succeeds or fails in its entirety across both sides) while transferring data between chains with different tech stacks is a technical challenge far more difficult than simple volume inquiry.
For the sake of stability, KSD chose a closed "intranet" approach through direct connection. However, the market demands connectivity and the free flow of liquidity, not isolation. When the physical connection of dozens of silos built on different protocols reaches its limit, we must inevitably look toward infrastructure innovation through software-based connectivity—namely, verified interoperability solutions.
5. Infrastructure Strategy for Sustainable Growth
While the legislation has undoubtedly opened doors to new opportunities, the direct-connection-centric infrastructure model currently under discussion has clear limitations in terms of scalability. We conclude this article with three strategic recommendations required for the Korean security token market to synchronize with global markets beyond domestic borders.
5.1 Alignment with Global Standards: Transitioning to an Open Ecosystem
The Korean financial market is at a critical inflection point. We must learn from the past "Galapagosization" of our IT industry, which struggled with compatibility against global web standards due to an insistence on proprietary technical specifications. In a blockchain-based financial market, compatibility with global standards must be the top priority from the design phase.
The choices made by leading global financial institutions like J.P. Morgan and Deutsche Bank are clear. They are adopting hybrid open structures that maintain the security and control of private chains while flexibly absorbing the massive liquidity of public chains. The Korean STO market will only achieve true competitiveness when it moves beyond building localized silos and aims for a "connected finance" environment that can communicate seamlessly with the global blockchain ecosystem.
5.2 KSD and Financial Authorities: Establishing an Efficient Management Framework
The most immediate task is harmonizing regulatory compliance with technical scalability. The role of the Korea Securities Depository (KSD) in total volume management and oversight is indispensable as the final bastion of market trust. However, the method of performing this oversight should shift from physical direct connection to a software-based approach that ensures technical flexibility.
The current method of participating as a node in every issuer's chain to synchronize data provides strong control but will be difficult to sustain due to the management costs and engineering overhead as market participants surge.As an alternative, the adoption of proven interoperability protocols as middleware should be actively considered. This approach would allow KSD to complete a flexible oversight framework, focusing on its core duties of data monitoring and risk management rather than the burden of individually managing technical fragmentation across various chains.
5.3 Brokerages and Issuers: Maximizing Asset Value
As Issuer Account Management Institutions, securities firms and fractional investment providers must ensure alignment with global markets so that Korean security token assets can be fairly valued on the international stage.
Korea’s attractive underlying assets—including K-content, prime commercial real estate, and Intellectual Property (IP)—possess sufficient appeal for global investors. For these assets to be recognized at their true value without a "Korea Discount," the possibility of connection with other platforms and global liquidity must remain open from the design phase. Pre-emptively adopting universal messaging technologies and interoperability infrastructure to build pipelines that safely connect proprietary tokens with diverse ecosystems is the fastest way for the Korean STO market to establish itself globally.
5.4 Completing Financial Innovation Through Connectivity
The completion of STO legislation in January 2026 marks the prelude to a digital transformation of the Korean capital market. If the regulatory system has created a solid vessel to hold innovation, technology must now pave the way for those vessels to be harmoniously connected to create new value.
Unifying a fragmented market is the key to increasing market efficiency and maximizing benefits for all participants, going beyond a mere technical challenge. Interoperability technology, which implements software-based connectivity beyond physical constraints, will serve as a vital stepping stone to resolve the complexities of the multi-ledger era and propel the Korean STO market to the next level. We look forward to an infrastructure revolution toward an open ecosystem that breaks free from isolated silos and completes the globalization of the Korean STO market.
Key Sources
Korea Securities Depository (KSD) – Launch of the Token Securities Test-bed Platform
KRX – Introduction to Trading at KRX Stock Markets
Disclaimer
The contents of this report are for informational purposes only and do not constitute a recommendation or basis for legal, business, investment, or tax advice under any circumstances. References to specific assets or securities are for informational purposes only and do not represent an offer, solicitation, or recommendation to invest. The final responsibility for any investment decisions lies solely with the investor, and this report should not be used as a guideline for accounting or legal judgment.
As a matter of principle, the author does not trade related assets using material non-public information obtained during the research or drafting process. The author and Catalyze may have financial interests in the assets or tokens discussed herein and may serve as a strategic partner to certain networks.
The opinions and analyses expressed in this report reflect the author's personal views and do not necessarily represent the official position of Catalyze or its affiliates. All information is current as of the date of publication and is subject to change without prior notice.