Legal Review of Terms of Use for a Crypto Auto-Trading Program

Client Information

Corporate / Business Entity

 

Case Details

The client operated a blockchain-based automated swap transaction service and requested a legal review and revision of its Terms of Use.

The service was designed to automatically execute transactions from users’ own wallets. It adopted a non-custodial structure, meaning that the operator did not directly hold, manage, or control users’ virtual assets.

However, the existing Terms of Use did not clearly explain the non-custodial nature of the service or the operational independence of the platform. Several provisions also contained wording that could cause misunderstandings regarding wallet integration, private key handling, and the fee structure.

The lack of clarity in the Terms of Use could potentially be used as an unfavorable factor when assessing whether the service falls under the definition of a Virtual Asset Service Provider under Korea’s Act on Reporting and Using Specified Financial Transaction Information, or whether it could be viewed as an investment discretionary service under the Financial Investment Services and Capital Markets Act.

Decent Law Office analyzed the service structure from the perspectives of Korea’s virtual asset regulations and capital markets regulations. Based on this analysis, we prepared a legal review memorandum and proposed revisions to the Terms of Use, focusing on two key issues.

First, under Korea’s Act on Reporting and Using Specified Financial Transaction Information and the Act on the Protection of Virtual Asset Users, a Virtual Asset Service Provider may include a person or entity that engages in the sale, purchase, exchange, transfer, custody, management, brokerage, arrangement, or agency of virtual assets as a business.

Even where a service appears to provide only a technical tool, a structure that executes transactions using a user’s wallet connection may still be interpreted by regulators as a form of transaction agency or facilitation, depending on the actual service flow.

Accordingly, we revised the Terms of Use to clearly state that the service operates on a non-custodial basis, that both the originating and receiving wallet addresses for swap transactions belong to the user, and that the operator does not intervene in or control users’ trading decisions.

Second, we reviewed whether the automated trading structure could be misunderstood as a discretionary investment service. A trading bot that automatically executes token swaps within conditions set by the user may appear, from the outside, to be operating assets on behalf of the user.

In general, virtual assets are not automatically treated as financial investment products under Korea’s capital markets regulations. However, depending on the nature of the token and the service structure, separate issues may arise regarding securities characteristics, involvement in investment decisions, and profit-sharing arrangements.

To address this risk, we added provisions clarifying that the operator does not make independent investment decisions and that the program functions only within the conditions selected and configured by the user.

We also reviewed the limitation of liability provisions in the existing Terms of Use. The original clauses were broadly drafted and could have limited effectiveness in the event of a dispute.

To strengthen the Terms of Use, we specified the scope of external risks in more detail, including hacking and security incidents involving third-party cloud infrastructure, declines in virtual asset prices or loss of value, rug pulls or service termination by platform operators, and exploitation of smart contract vulnerabilities.