Should Upbit return interest profits back to customers?

gettyimagesbank

Legal loophole creates controversy surrounding money deposited in coin exchanges

By Anna J. Park

Controversy is brewing surrounding Upbit, the country's largest cryptocurrency exchange, as criticism has arisen as to whether the firm should return interest rate profits that it gained from its huge number of customer deposits.

According to the electronic disclosure system of the Financial Supervisory Service (FSS), won-denominated currency deposited in the country's four major coin exchanges ― Upbit, Bithumb, Coinone and Korbit ― stood at over 7.6 trillion won ($6 billion) as of the end of last year.

Over 76 percent of the money, or some 5.8 trillion won, is deposited in Upbit accounts, followed by 1.4 trillion won deposited in Bithumb, 278 billion won in Coinone and 70.7 billion won in Korbit.

While the total amount of deposited money at the cryptocurrency exchanges have grown many times over the past year, there's no clear rule about the money deposited at customers' accounts, thereby causing the recent controversy.

Out of the country's major coin exchanges, only Upbit receives an annual interest of 0.1 percent from K bank, which has been providing the coin exchange with real-name bank accounts from their joint partnership. Other exchanges, including Bithumb, Coinone, Korbit and Gopax, have each partnered with commercial banks on their customers' accounts, yet they do not receive any interest from the deposited money from the banks.

Against this backdrop, some are raising questions as to whether it is right for Upbit to solely take the interest it received from K bank as part of the company's net profit. As of the end of last year, the coin exchange is estimated to have received 5.8 billion won from K bank as interest on its customers' deposited money of 5.8 trillion won.

While some criticize the cryptocurrency exchange for appropriating the money, the exchange argues that the lack of a legal framework regulating the cryptocurrency industry prevented it from distributing the interest profits back to customers.

“Coin exchanges are not categorized as a financial institution that can be involved in the businesses of receiving savings and deposits. If the exchange gives out interest for the account's deposits, there's a high chance that the company would be violating the country's capital market act,” an official from Upbit told The Korea Times.

The official explained that it has been focusing on various ESG programs instead.

“With the lack of a proper legal framework in the sector, Upbit is focusing on ESG activities to return the benefits back to society.”

The official added that Dunamu ― the operator of Upbit ― plans to spend 100 billion won on ESG activities by 2024. The company has spent over 47 billion won until this year in various investor protection and youth credit recovery activities.