Korean Police Open Fourth Seized-Crypto Tender, Putting Smaller Custodians at a Disadvantage

South Korea’s National Police Agency has launched its fourth tender to select an operator to store and manage seized virtual assets, or cryptocurrencies. Industry participants say stricter compensation requirements and the bidding structure make it effectively impossible for smaller custody firms to compete.

Edaily reported on June 12 that the agency recently posted a notice for the seized virtual asset storage and management project on the Korea ON-line E-Procurement System operated by the Public Procurement Service. The project has a budget of $193,000, more than triple the previous contract. The selected operator will be responsible for storing, managing and disposing of crypto assets seized by police over the next 365 days.

The tender’s most closely watched provision is its compensation liability requirement. In its request for proposals, the agency said any losses incurred while the assets are in custody must be reimbursed in full under any circumstances. Bidders must also build a 24-hour real-time response system to support seizure procedures by investigative authorities.

Industry participants say the terms effectively favor large Korean won-denominated crypto exchanges. The police agency’s seized crypto holdings are estimated at at least $109 million, leaving few potential bidders able to prove they can fully compensate for any losses.

Unlike an earlier pilot project run by the National Tax Service, this tender is not limited to small and medium-size enterprises. Any company with virtual asset service provider status can participate regardless of size, allowing large operators such as Dunamu and Bithumb to bid.

Despite hopes among smaller custodians, forming a consortium may not be easy in practice. As many as five companies can submit a joint bid, but industry participants say smaller firms would still struggle to match large won-based exchanges in capital strength and compensation capacity.

Deteriorating market conditions have also fueled interest in the project. According to the Financial Intelligence Unit, domestic virtual-asset custody assets fell to $222 million at the end of last year from $9.98 billion at the end of June 2024. That amounts to a decline of more than 97% in roughly a year and a half.

Major South Korean custodians have also posted weak earnings. Korea Digital Asset recorded a net loss of more than $1.09 million last year, while Korea Digital Asset Custody posted a net loss of more than $1.30 million. Industry participants say the custody-market downturn has dragged on, while one of the few large public-sector projects has been structured in a way that leaves smaller firms with little realistic access.