"A startup nurtured for seven years has been knocked out"…Fairness controversy over the FSC’s STO licensing

Briefing by Lucentblock CEO Heo Se-young

On track to be dropped from the STO OTC exchange race

Criticism over fairness of financial regulators’ licensing review

"Pushed to the brink of closure by entrenched interests"

"Nextrade stole our technology"

Korean fintech startup Lucentblock has come out swinging against what it calls an unfair review process by financial regulators regarding licenses for token securities (STO) over-the-counter (OTC) exchanges. It also reported alternative trading venue Nextrade (NXT) to the Korea Fair Trade Commission (KFTC) over allegations of technology misappropriation during the OTC exchange licensing application process.

At a press briefing on the 12th at ‘Maru180’ in Gangnam-gu, Seoul, Lucentblock CEO Heo Se-young said, “It has been reported that companies that have never run an STO business received higher marks in the Financial Services Commission’s STO OTC exchange licensing than Lucentblock, which has operated its platform for four years serving 500,000 customers.”

Earlier, on the 7th, the Securities and Futures Commission under the Financial Services Commission approved agenda items for preliminary licenses for securities investment business for STO OTC exchanges submitted by the Korea Exchange (KRX) and Nextrade. By contrast, Lucentblock was reportedly effectively eliminated at the preliminary-approval stage.

Heo noted that, unlike Lucentblock—which has operated an STO business for about seven years since its founding in 2018—KRX and Nextrade have no relevant track record. “This is proof that greater value was placed on paper plans and branding submitted by large institutions staffed with former FSC officials, and it seriously undermines the fairness of the review,” he said. “While Lucentblock built the STO market from scratch over the past seven years, those institutions have not made a single contribution to the industry.”

"Pushed to the brink of closure by entrenched interests"

Lucentblock said it reported Nextrade to the KFTC on the day, claiming Nextrade unilaterally broke a nondisclosure agreement (NDA) and misappropriated its technology. Heo said, “What we reported to the KFTC includes (Nextrade’s) obstruction of business activities and violations of merger filing obligations,” adding, “We plan to disclose the (specific) details of the complaint within this week.”

Heo believes Nextrade used misappropriated Lucentblock internal information in its STO OTC exchange license application. “Nextrade approached us under the pretext of reviewing investment and consortium participation prior to submitting the (STO OTC exchange) application, signed an NDA, and then received sensitive internal information such as Lucentblock’s financials, business plan, and core technical materials,” he said. “But then, without making an investment or forming a consortium, it applied directly for a license in the same business area in just 2–3 weeks.” Allegations of Nextrade’s technology misappropriation were also raised during last year’s National Assembly audit by the Strategy and Finance Committee.

He also questioned the rationale for selecting KRX. “KRX was able to operate an STO on-exchange marketplace for two years through the regulatory sandbox, but its actual distribution results were ‘zero (0),’” he said. “A public institution that had the opportunity yet failed to prove a single result attempting to enter the OTC exchange market is clear ‘free-riding’ that appropriates the fruits of innovation painstakingly cultivated by the private sector.”

NXT reported to the KFTC

Heo stressed that the key to the OTC exchange business is the “institutionalization of an existing business.” “This is not dissatisfaction over being unable to enter a new business; it is a disaster in which a business we were operating is halted overnight, pushing us to the brink of closure,” he said. “This case is about a company that tried innovation first and continued operating being forced out during the institutionalization process, while entrenched interests take its place.”

He also argued that the licensing decision runs counter to the intent of the ‘Special Act on Support for Financial Innovation.’ “The core purpose of the Special Act is to temporarily ease regulations and build an institutional foundation for innovative fintech startups to grow,” he said. “But in the actual institutionalization process, we are facing the risk of being driven out—having even our operating rights stripped—rather than seeing any protection for the achievements and first-mover status accumulated during the designation period as an innovative financial service.”

Lucentblock was designated as an FSC innovative service in 2021 and operated its STO platform ‘Soyo’ for about four years. According to Lucentblock, as of the end of last year, Soyo had about 500,000 members and cumulative transaction volume of about KRW 30 billion. The industry cites it as the first case in Korea to structure an STO business.

Heo said, “Safeguards to protect innovative financial operators that carried the greatest institutional risk and completed the testbed process without issue have effectively disappeared, producing results that directly clash with legislative intent,” adding, “The fundamental purpose pursued by the Special Act is being rendered powerless in the field.”

Meanwhile, the FSC plans to hold a regular meeting on the 14th to finalize preliminary license recipients for STO OTC exchanges. It is rare for agenda items that pass the Securities and Futures Commission to be overturned at a regular meeting. Heo said, “I know the probability (of the outcome changing) is slim,” adding, “Starting on the 13th, I will hold a one-person protest in front of the Government Complex Seoul.”

In connection with this, an FSC official said, “Nothing has been finalized regarding STO OTC exchange licensing.”

Reporter Lee Jun-hyung, Bloomingbit gilson@bloomingbit.io