The competition among major Korean exchange houses for deposit rates is fierce, with the highest rate reaching 4%. The authorities have intervened to question the rationality of this.

2024-07-25 15:50

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Original title: "High annualized stablecoin interest is gone! South Korea is eyeing the five major exchanges, concerned about Upbit and Bithumb's 4% customer deposit"

Original author: Ting, BlockTempo

South Korea's "Virtual Asset User Protection Act" officially came into effect on July 19, aiming to protect the rights and interests of virtual asset users and establish a healthy market order. The implementation of this law marks an important step for the South Korean government in regulating the virtual asset market.

Extended reading: "South Korea's "token delisting" rumors continue, what impact will the "Virtual Asset User Protection Act" have? 》

Competition for deposit utilization rates heats up

According to South Korean media News1, since the implementation of the "Virtual Asset User Protection Act", the competition for "deposit utilization rates" among major exchanges in South Korea has become increasingly fierce. On the 20th, Upbit raised its previously announced 1.3% interest rate to 2.1%, Bithumb raised it from 2.0% to 2.2%, and Korbit followed suit and raised its interest rate to 2.5%.

Subsequently, the leading Bithumb further raised its interest rate from 2.2% to 4.0% on the 23rd. This includes the 2.0% interest rate generated by the operation of NH Nonghyup Bank, a real-name account cooperative bank, plus an additional 2.0% interest rate paid by Bithumb.

Deposit utilization rate refers to the deposit utilization fee rate paid by virtual asset exchanges or financial institutions to users. When users deposit funds into exchanges or financial institutions, these institutions may use these funds for operations or investment activities to generate income. This rate includes the interest that exchanges or financial platforms receive from banks, as well as part of the fees they pay to users in addition.

Bithumb withdraws 4% interest rate after financial authorities consider it unreasonable

The South Korean financial authorities considered the 4.0% interest rate offered by Bithumb unreasonable and therefore blocked it.

According to the Virtual Asset Industry Regulatory Ordinance, virtual asset operators should consider operating income, incurred costs and other factors for "reasonable calculation" and pay interest on user deposits accordingly. As the rationality of the additional payment by Bithumb was questioned, the exchange eventually withdrew its decision to raise the interest rate by 4.0%.

Financial Supervisory Service convenes an emergency meeting

In order to quell the competition over fees, the Financial Supervisory Service (FSS) of South Korea also urgently convened the five major virtual asset exchanges in South Korea (Upbit, Bithumb, Coinone, Korbit, Gopax) today (24) to discuss matters related to deposit utilization fees. A person related to the Financial Supervisory Service said:

"Regarding the calculation standard of the deposit utilization fee rate in the regulatory provisions, the exchanges seem to have failed to reach a consensus, so the exchanges were convened to confirm the calculation method again."

It is understood that each exchange reported to the authorities one by one what bank products are used to manage deposits and how the deposit service fee rate is calculated.

A person in charge of a virtual asset exchange said:

"Although interest rate calculation is the inherent authority of the exchange, we have also actively negotiated with banks and submitted relevant information to the Financial Supervisory Service."