Since most of South Korea's virtual asset exchanges use "Korean Won" trading pairs, users' fiat currency deposits hosted by major exchanges (Upbit, Bithumb, etc.) will pay bank interest to users. Recently, the Korean exchange Bithumb once adjusted the interest rate to 4%, which alarmed the Financial Supervisory Service (FSC) and required all exchanges to return to reasonable interest rates.

Users can earn interest! South Korea's Bithumb deposit usage fee is higher than base interest rate under review

In South Korea, this is called a "deposit usage fee." After the exchange collects the user's legal currency deposit, it will pay interest to the user at a fixed time.

After the implementation of the Virtual Asset User Protection Act, fee competition among exchanges began to heat up. Upbit raised the originally announced rate from 1.3% to 2.1%, Bithumb raised it from 2.0% to 2.2%, and Korbit followed up with an increase to 2.5%. Bithumb went a step further and announced on the afternoon of the 23rd that it would increase the originally announced 2.2% rate to 4.0%, which is higher than the Bank of Korea’s base interest rate deposit rate: 2.1% (3.5%) per year, allowing the FSC to convene an emergency review meeting.

According to Korean regulatory regulations, "deposit usage fees" should be reasonably calculated based on the exchange's operating income and incurred costs. However, the FSC believes that Bithumb's method of adding bank interest to its own funds to pay usage fees does not comply with regulations.

Bithumb fee decision sparks controversy

Bithumb’s rates are made up of 2.0% APR generated by operating its real-name account partner bank NH Nonghyup Bank, plus an additional 2% APR paid by Bithumb.

However, questions have been raised about whether such rates are reasonable. According to Article 5 of the "Virtual Asset Industry Supervision Provisions", virtual asset operators should establish reasonable deposit usage fee calculation standards and pay deposit usage fees based on this standard. Ultimately, Bithumb reversed its decision to increase its rates to 4%.

FSC urgently summons exchanges

The FSC convened the heads of the five major virtual asset exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax) on the morning of the 24th to re-examine the calculation method of deposit usage rates. The authorities believe that exchanges have different views on what constitutes a reasonable fee rate and the calculation standards need to be reaffirmed.

During this meeting, the exchange reported to the authorities on which banking products deposits were operated through and how deposit usage rates were calculated.

A person related to a virtual asset exchange said: "Although fee calculation is the inherent authority of the exchange, it also actively negotiates with banks and submits relevant information to the Financial Supervisory Service."

Upbit’s interest payment example

  • Deposit rate: 2.1% per year, deposit fees are paid to KYC members residing in South Korea

  • Deposit fees incurred during the previous quarter will be paid every 3 months (January, April, July and October)

  • Deposit fees will be paid to the Upbit account after deducting the amount of withholding tax (15.4%)

  • Usage fees due from July 19, 2024

FSC will actively monitor exchange rate policies

The FSC stated that it will continue to pay close attention to the rate competition of virtual asset exchanges and ensure that deposit usage rates are within a reasonable range. This action aims to maintain market order and protect the interests of investors.

In the future, with the further implementation of the Virtual Asset User Protection Law, each exchange will need to handle fee issues more carefully to avoid unnecessary market fluctuations and regulatory risks.

Experts say: The current policy is a bit paradoxical

Lian News interviewed Jake, a Korean operator, and said: "I think the current regulations are a bit strange, but the focus of the new interest rate policy is that users' assets are now regarded as liquid assets. Previously, these assets were considered cold assets, so exchanges did not Interest needs to be paid. But now, since these assets are considered liquid assets and the exchange still has no control over them, the exchange needs to pay an opportunity cost for holding user assets.”

This article Korean exchange’s fiat interest rates are too high! Financial regulators urgently summon Upbit, Bithumb and other exchanges to review “deposit usage fees” first appeared on Chain News ABMedia.