10/06/2024 South Korea labels mass-produced NFTs as virtual assets

NFTs considered as virtual assets are eligible to receive interest when deposited to exchanges according to the FSC’s guidelines published in 2023.

South Korea labels mass-produced NFTs as virtual assets

South Korea’s financial watchdog, the Financial Services Commission (FSC), issued guidelines clarifying when nonfungible tokens (NFTs) can be treated as virtual assets.

On June 10, local media outlet News1reportedthat the FSC will regulate NFTs similarly to crypto if they don’t possess traits that differentiate them from virtual assets.

According to the regulator, NFTs that are mass-produced, divisible and can be used as payment will be considered virtual assets.

Mass-produced NFTs could be used for payments

NFTs with little to no value at all will be treated differently. This applies to NFTs being used in ticketing or digital certificate NFTs. In these cases, they are classified as general NFTs.

The FSC’s Financial Innovation Planning head, Jeon Yo-seop,saidin an interview that it is highly probable that NFT collections with high quantities would be used as payment.

The official highlighted that there would be a lot of transactions if one million NFTs were issued in a collection. In this situation, the official believes the NFTs could be used as a payment method.

Despite this, the FSC noted that it will distinguish collections through a case-to-case review. This means there would be no absolute standard in interpreting NFTs as crypto.

Furthermore, the new guidelines also suggested that NFTs could be treated as a security if they showcase features specified in the country’s Capital Markets Act.

Virtual asset NFTs can receive interest

In preparation for implementing new rules for virtual assets in July 2024, the South Korean regulator issued various guidelines to help stakeholders navigate the country’s laws.

In 2023, the FSC mentioned that by July, virtual assetsmust receive interestwhen they deposit their funds into a crypto exchange. However, the regulator clarified that the law does not include regular NFTs andcentral bank digital currencies (CBDCs).

While regular NFTs and CBDCs are excluded, there are also exceptions to the rule. The new update from the FSC reiterates its previous statements last year that NFTs classified as virtual assets can receive interest once they are deposited on exchanges.

This means that NFTs used as payment and are issued in large quantities are eligible for interest.