Key Notes
- The leading Korean exchange plans to keep almost no funds in its hot wallets.
- Upbit is going far above the legal minimum of keeping only 80% of funds in cold wallets.
- The move will strengthen Upbit’s security but also decrease its liquidity.
Upbit, South Korea’s largest crypto exchange, will move almost all customer assets into cold wallets after attackers breached its Solana hot wallets in late November.
Dunamu, Upbit’s parent company, announced on Wednesday, Dec. 10, that the crypto exchange is planning to move over 99% of its digital assets to cold wallets.
South Korea’s Virtual Asset User Protection Act requires all crypto exchanges to hold at least 80% of their digital assets in cold wallets.
While Upbit already holds 98.33% of its cryptocurrency holdings, the exchange’s owner company aims to decrease its hot wallet holdings to below 1% after losing 44.5 billion KRW, worth roughly $31 million, to hackers on Nov. 27.
According to a Coinspeaker report on Dec. 8, Upbit froze $1.77 million of the stolen funds by using its own Automatic Tracking Service, but the remaining assets seem to be lost forever.
The company also noted that it will cover all losses from its own reserves and says user funds are safe.
What Are the Downsides to More Security?
Upbit’s move sets a new security benchmark and may push other exchanges to show and improve their own cold/hot wallet ratios.
This could reduce the risk of losing large sums of digital money, as the attack surface will become very small for fraudulent actors.
On the other hand, this will lower the exchange’s liquidity, with almost all funds offline, big withdrawal spikes may be slower to process, especially in stress events.
If withdrawals are delayed, price gaps between Korean exchanges and global markets, the “Kimchi premium,” may grow during volatility.
After the hack, when Upbit paused withdrawals, arbitrage to global markets stopped, and some altcoins spiked double or triple in price as trapped liquidity pumped the market.
CryptoQuant CEO Ki Young Ju shared the negative effect of having no access to global markets in his X post on the day Upbit was hacked.
Upbit is the leading Korean exchange with a daily trading volume of over $1.3 billion, according to CoinMarketCap data.
The platform supports 301 different crypto tokens, including the ones with smaller market caps. MEW, for instance, has a market value of just $102 million. If the exchange faces any liquidity issues, the risks of facing double or even triple prices would increase significantly.
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Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
Wahid has been analyzing and reporting on the latest trends in the decentralized ecosystem since 2019. He has over 4,000 articles to his name and his work has been featured on some of the leading outlets including Yahoo Finance, Investing.com, Cointelegraph, and Benzinga. Other than reporting, Wahid likes to connect the dots between DeFi and macro on his newsletter, On-chain Monk.
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Source: https://www.coinspeaker.com/upbit-goes-99-cold-storage-after-over-30m-hack-shock/
