Korea's Mirae Asset to launch digital asset business

Mirae Asset Financial Group, South Korea’s capital market giant, is set to enter the digital asset business, starting with a digital asset custody service (DACS), as it aims to expand into investment product development.

The group plans to launch a new corporate specialized in the DACS soon, according to the financial investment industry on Tuesday. The group’s innovation team drew up the plan as a future growth engine. The team is the group’s think tank that was established when it acquired Daewoo Securities.

The DACS is a service that safely stores and manages digital assets such as cryptocurrency and non-fungible tokens (NFTs). Demand for the service has been growing lately, with a much higher number of domestic companies starting to own various types of cryptocurrencies for business diversification or investment purposes. South Korea, however, does not allow local entities to use services provided by cryptocurrency exchanges currently. The DACS helps them invest in digital assets without concerns about theft or loss.

Mirae is expected to develop loans and funds based on the stored digital assets, industry sources said. The DACS is just for entry into the digital asset investment business as a future growth engine.

“The emergence of digital technologies and assets such as cryptocurrency and blockchain created new markets and businesses,” said Choi Hyun-man, CEO and chairman of Mirae Asset Securities, the group’s brokerage unit, in a new year message. “Companies that quickly captured these changes and created new values have grown into powerhouses in the new markets.”

The digital asset business is an irresistible trend as young generations, or millennials and Gen Zers, collectively known as MZers, future customers of the financial industry, are active investors in cryptocurrency and NFT.

The global digital asset market capitalization stood at about $2 trillion, according to CoinMarketCap.

'IT IS RISKY NOT TO INVEST IN A CHANGING WORLD'

Park Hyeon-joo, the founder and global investment strategy officer of Mirae Asset Financial Group, urged employees to actively seek new business, saying “look at the world from a new perspective. It is a risk not to invest when the world is changing.”

In 2021, the virtual world was a key theme in the stock market. The rise of metaverse and NFT destroyed the boundaries between the virtual world and the real world. Mirae, which means the future in Korean, aims for the financial business, especially the digital asset sector, in the virtual world.

The group is preparing for the establishment of a DACS company. In other countries, DACS firms often pay interest rates or provide investment agency services. South Korea’s authorities in March 2021 revised laws to allow the establishment of such companies.

SERVICE FOR CORPORATES, RICH RETAIL INVESTORS

The DACS’ largest customers are expected to be local companies that want to safely invest in digital assets. South Korea currently bans cryptocurrency trades through corporate accounts at cryptocurrency exchanges, only allowing real individuals’ legal name bank accounts. Thus, the companies and organizations in the country must keep their cryptocurrencies in their own storage drives such as a USB, a cold wallet that is a physical device to keep cryptocurrency completely offline. That often raises risk of theft or loss.

Retail investors, who hold large amounts of digital assets, are also potential customers. Cryptocurrency itself is safe from hacking since it is based on blockchain technology. But hackers can target the asset when owners trade because they need a hardware wallet for transactions.

Demand from public sectors is expected to increase as the DACS can store and manage crime-related cryptocurrency confiscated by courts until the case is closed, for example.

“Cryptocurrency exchanges are designed for both security and accessibility because investors should be able to deposit and withdraw digital assets anytime,” said a DACS industry source. “On the other hand, a DACS company aims to keep the asset safely with more complicated certification processes when owners withdraw assets.”

MAJOR BANKS ALREADY IN

South Korea’s major banks already started the DACS business. They utilized their specialty in asset storage for the new business in order to meet the demand for the safe storage of digital assets. But they formed joint ventures since the country forbids banks from directly entering the DACS market.

The nation’s largest lender KB Kookmin Bank established Korea Digital Asset Co. (KODA) last November with domestic blockchain company Haechi Labs and blockchain-oriented venture fund Hashed. Woori Bank set up a JV, named D-Custody, with bitcoin-based fintech solutions provider Coinplug Inc. Mirae is expected to follow suit.

Foreign financial companies chose the DACS as a future growth engine. Japan’s investment bank Nomura Holdings Inc. established Komainu, a JV with digital asset investment house CoinShares and digital asset security firm Ledger to provide DACS to institutional investors. Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Deutsche Bank AG are already supplying or will provide the service. Basler Kantonalbank (BKB), owned by the Swiss Canton of Basel City, unveiled plans to offer cryptocurrency custodial service to its clients through its subsidiary Bank Cler.

The DACS allows financial companies to accumulate data on companies’ digital asset investment, which will be a basis for investment product development.

South Korean laws require asset managers to entrust securities such as stocks that they invest with clients’ money to separate financial institutions. Asset managers are not allowed to set up funds without custodians.

“The DACS is the first step in expanding its business into loans and derivatives using digital assets,” said a digital asset industry source. “Since the digital asset investment has become an irresistible huge trend, the DACS will help them make inroads into the market earlier.”

Write to Eun-Seo Koo at koo@hankyung.com
Jongwoo Cheon edited this article.