On the day this February when the Financial Services Commission announced the results of preliminary approvals for over-the-counter fractional investment exchanges, my phone would not stop ringing. The callers were not from LucentBlock, the company directly affected, but founders running or preparing businesses under the regulatory sandbox in entirely different fields. Their question was the same: "Aren't we going to end up like that too?"
Founders live in constant fear that laws and regulations will ruin their businesses. The regulatory sandbox is a promise the state made in the name of reviving the startup ecosystem. The message is this: since no law or system exists yet, founders should test the market first, and once it is proven, the system will be built. Founders stake their lives on that promise, bearing the risk.
LucentBlock is a company that faithfully kept its side of that bargain. Founded in Daejeon in 2018, it received Korea's first Innovative Financial Service designation for a real estate beneficiary certificate trading platform in 2021, and went on to operate the fractional investment platform "Soyou" for more than four years. Without a single financial incident, it built up 500,000 users and 30 billion won ($22 million) in securities issued and traded. Yet the moment the tokenized securities (STO) system was created, LucentBlock was pushed outside it. Preliminary approval went to a consortium led by the Korea Exchange and Nextrade. The startup that had tested the market for eight years was erased, while institutions that had not even taken part in that testing took over the market.
The reasons cited for its rejection were capital adequacy and funding plans. This is not to dispute how the judges scored the applications. It is to point out that no startup in Korea could beat the Korea Exchange in a contest over capital. The moment that criterion was placed at the center of the review, the outcome was already settled. Moreover, finance is not an industry that can be protected by patents. The structure of a product is disclosed the moment it is filed, and the business model is laid out in the licensing documents. The Innovative Financial Service designation is said to come with an "exclusive operating right" as a safeguard, but at the decisive moment when the market was being institutionalized, it protected nothing. If the rule is that founders bear the risk while capital reaps the reward, it is not a fair game.
Over the past decade, the Korea Startup Forum has watched founders run aground more than once. Mobility and legal tech alike collided with entrenched professional groups and lost entire stretches of their growth. But those were at least "collisions." There was an opponent, and there was debate. This time is different. Founders were pushed out within a system the state designed itself. Losing a fight at least leaves a strategy for the next challenger, but being erased from the process discourages the challenge itself. If a company can be excluded even after succeeding at the very test it was asked to run, who will trust the system enough to take on the challenge?
Last month, Rep. Min Byoung-dug of the Democratic Party, a member of the National Assembly's National Policy Committee, made a proposal to the FSC — not that LucentBlock be granted approval, but that with the two consortiums now applying for final approval, at least the opportunity to file an additional preliminary application should be guaranteed. Even if given the chance, the review will remain rigorous, and the company could be rejected again. What reason is there to deny even that single chance to a company that opened the door to institutionalization through real-world validation?
On the surface, the FSC's decision is a licensing question about a single company, but at its core it is a question of trust in the regulatory sandbox. Countless founders are now watching to see what price the person who jumped in first, trusting the government, has to pay. I hope a final chance will be given, so that founders can keep trusting the state and taking on the challenge to the end.
