South Korea considers 99% cold storage rule for crypto exchanges

Traders Union
All News
Crypto
99% cold storage rule

New requirements could affect most crypto exchanges

South Korea's Virtual Asset User Protection Act currently requires operators to store at least 80% of customer cryptocurrencies in cold wallets. The remaining assets may be held in hot wallets, which are used to process deposits and withdrawals quickly.

However, the country's largest trading platforms already maintain higher levels of cold storage.

According to News1, Upbit holds more than 99% of customer assets in cold wallets, Bithumb approximately 94%, and Coinone around 85%. DigitalX and Gopax maintain ratios slightly above the current minimum requirement of 80%.

As a result, adopting a uniform 99% requirement would force most market participants to revise their liquidity management systems.

The main challenge is a reduction in funds available for immediate withdrawals. For example, if an exchange holds 10,000 units of cryptocurrency, the current 80% requirement allows it to keep up to 2,000 units outside cold storage. Raising the threshold to 99% would reduce that amount to just 100 units.

Transferring assets from a cold wallet requires additional verification procedures and transaction signatures. During periods of high demand, these steps could slow withdrawal processing.

Industry warns of potential withdrawal delays

The new rules could have particularly serious consequences for smaller cryptocurrency exchanges with limited reserves of certain tokens.

During periods of sharp price fluctuations, withdrawal delays could prevent investors from transferring assets to another platform and executing trades in time.

Similar problems have already occurred in South Korea's cryptocurrency market. In August, Bithumb experienced withdrawal delays of approximately 13 hours for certain altcoins. The company attributed the disruption to insufficient funds in hot wallets and the need to transfer cryptocurrency from cold storage.

Industry representatives also question whether raising the cold storage requirement alone would prevent sophisticated cyberattacks. In particular, suspected causes of the Binance hack include a compromised employee laptop, infiltration of internal systems, and unauthorized access to transaction approval mechanisms.

Amid the fallout from the Binance attack, USDT stablecoin issuer Tether fro ze more than $1.5 billion in crypto assets linked to the incident. According to the company, the operation took approximately 30 minutes after it received information about North Korea's involvement in the hack.

Earlier, we reported that Binance had entered the second phase of its withdrawal restoration process following the massive cyberattack. The exchange continued its phased resumption of operations as it addressed the aftermath of the incident.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.