The recent enactment of the Virtual Asset User Protection Act has sparked a fierce battle among South Korea’s leading virtual asset exchanges, with major players now offering deposit interest rates exceeding 2 percent to lure customers.
As of Monday, Korbit stands out with the highest deposit interest rate among the top five exchanges, offering a generous 2.5 percent. Bithumb follows closely with 2.2 percent, Upbit offers 2.1 percent, GOPAX 1.3 percent, and Coinone rounds out the group at 1 percent.
Deposits in these exchanges function similarly to cash held by securities firms for stock transactions, but until the new law was implemented, no interest was paid on these deposits. The Virtual Asset User Protection Act, which came into effect last Friday, mandates that virtual asset exchanges store and manage users’ cash deposits in contracted banks and compensate users with interest on these deposits.
This regulatory change triggered a frantic late-night scramble among exchanges to offer the most attractive rates. The initial move was made by Upbit, South Korea’s largest virtual asset exchange, which announced a 1.3 percent annual interest rate at 10:00 p.m. on Friday. In response, Bithumb, Upbit’s primary rival, quickly set its rate at 2 percent just an hour and a half later, touting it as the highest in the industry.
Not to be outdone, Upbit swiftly adjusted its rate to 2.1 percent within 39 minutes of Bithumb’s announcement. Bithumb then upped its offer by an additional 0.2 percentage points. In the early hours of the morning, as competition between Upbit and Bithumb appeared to settle, Korbit seized the opportunity and raised its deposit interest rate from 1.5 percent to 2.5 percent, thus claiming the highest rate among the exchanges.
Industry officials explain that this fierce competition is a strategic move by these exchanges to increase their market share by attracting customers with high deposit interest rates. The annual interest rate of 2 percent offered by these exchanges is notably high, particularly when compared to the approximate 1 percent rates offered by securities firms.
However, these rates are not set in stone and may fluctuate based on market conditions. Korbit has indicated that it will closely monitor market trends and customer inflow throughout July before determining the interest rates for August. “For the remainder of July, we need to monitor market trends related to our company, including customer inflow. Therefore, it’s difficult to make definitive statements about the August interest rates at this time,” Korbit stated. “Since deposit interest rates can clearly be a significant factor in customers’ choice of exchange, our priority will be in adopting competitive policies to attract customers.”
The total deposits held by the five leading virtual asset exchanges as of the first quarter of this year are as follows: Upbit leads with 6.3 trillion won ($4.5 billion), followed by Bithumb with 1.6 trillion won, Coinone with 112.8 billion won, Korbit with 56.4 billion won, and GOPAX with 4.1 billion won.
The newly implemented regulations and the ensuing competition among exchanges highlight the evolving landscape of South Korea’s virtual asset market. As exchanges vie for dominance, customers stand to benefit from more attractive deposit rates, underscoring the dynamic and competitive nature of the cryptocurrency sector in the region.
