South Korea requires crypto exchanges to set aside at least $2.3 million in reserves for customer protection
- Korea Federation of Banks requires crypto exchanges in South Korea to hold minimum reserves of 3 billion won, local media reports.
- Upbit and Bithumb are on track to comply with the requirement outlined in guidelines titled Virtual Asset Real-Name Account Operation Guidelines.
- The reserves will be used to fulfill the liability of damage to the exchange’s users.
The Korea Federation of Banks is a bankers’ association, similar to the American Bankers Association. Its members are banks and financial institutions and it sets guidelines in lieu of protecting customer funds.
The association recently issued guidelines for crypto exchanges, requiring a sum of 3 billion won or 30% of the average daily deposits to be set aside as reserves. This reserves would be used to make customers whole in the event of an event that results in a loss of funds for users.
Also read: XRP price poised for recovery on popularity with South Korean traders and SEC lawsuit development
South Korean crypto exchanges required to maintain $2.3 million in reserves
South Korea has ramped up efforts to protect crypto traders from loss of funds at the behest of crypto exchanges. In its latest effort, the Korea Federation of Banks issued guidelines titled “Virtual Asset Real-Name Account Operation Guidelines,” according to reports by a local news agency News1.
The guidelines require crypto exchanges operational in South Korea, like Upbit and Bithumb, to set aside reserves of $2.3 million (3 billion won) or higher, capped at $20 billion won. The actual value of reserves to be maintained is a minimum of $2.3 million or 30% of the exchange’s daily average deposits by users, starting September.
According to the Federation, the funds from these reserves will come in handy when the exchange owes “damages” to users or has a liability for damage.
After the collapse of exchanges like Samuel Bankman Fried’s FTX in November 2022, South Korean institutions and regulators have turned their attention to the protection of customer funds while setting guidelines for crypto exchanges operating in Korea.
The move is likely to instill confidence in users and drive adoption of crypto trading across exchange platforms.
Bitcoin, altcoins, stablecoins FAQs
What is Bitcoin?
Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.
What are altcoins?
Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.
What are stablecoins?
Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.
What is Bitcoin Dominance?
Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.
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Author
Ekta Mourya
FXStreet
Ekta Mourya has extensive experience in fundamental and on-chain analysis, particularly focused on impact of macroeconomics and central bank policies on cryptocurrencies.
