South Korean cryptocurrency exchanges have been making headlines recently for paying out a whopping $87 million in interest to their customers over the past year. This data was revealed by the Financial Supervisory Service in response to a freedom of information request from Democratic Party lawmaker Heo Young, who sits on the National Assembly’s Political Affairs Committee.
The interest payments were made by the nation’s top five fiat-trading platforms – Upbit, Bithumb, Coinone, Korbit, and GOPAX – in accordance with the Virtual Asset User Protection Act that was introduced in July last year. This law requires exchanges to provide reasonable interest payments on fiat deposits held on their platforms, a stark contrast to the minimal 0.1% interest rates that were previously offered.
The introduction of the Virtual Asset User Protection Act sparked a fierce competition among the exchanges to attract new customers with high interest rates paid quarterly. Platforms like Bithumb even announced a 4% interest rate at one point, only to backtrack shortly after. Despite the initial flurry of activity, exchange platforms have gradually started to reduce their interest rates.
As of June this year, Upbit was offering a 2.1% interest rate, Bithumb 2.2%, Coinone 2.0%, Korbit 2.1%, and GOPAX 1.3%. While these rates are still higher than most commercial banks’ standard 1% account interest rates, platforms have begun to respond to the Bank of Korea’s decision to cut base interest rates by lowering their rates. Korbit reduced its usage fee rate to 1.9% this month, while Coinone plans to cut its rate to 1.77% next month.
The Financial Supervisory Service has expressed its commitment to establishing a standard for calculating interest payments that maintains a competitive order in the market. Lawmaker Heo Young raised concerns about the concentration of capital in certain exchanges, particularly pointing to Upbit’s dominance with over 60% of the market share. He emphasized the need to protect users and ensure a fair and competitive environment in the cryptocurrency exchange scene.
Overall, the interest payments made by South Korean exchanges reflect a growing trend in the industry towards offering competitive rates to attract and retain customers. As the market continues to evolve, regulators and lawmakers will play a crucial role in ensuring the protection of users and the establishment of a level playing field for all participants.