South Korea Hit Hard by FTX Bankruptcy

Because of high user counts, some Asian countries are especially feeling the pain from the FTX exchange collapse.

Because of the large user base, some Asian countries are especially suffering from the crash of the crypto exchange FTX. South Korea has been hit the hardest, and the government is stepping in now.

On November 11, 2022, FTX officially filed for bankruptcy. Sam Bankman-Fried's company dragged the entire crypto sector down and left millions of investors who lost a lot of money behind. The platform was particularly popular in Asian countries. According to an analysis by CoinGecko, South Korea, Singapore, and Japan together had 762,000 monthly user visits. That means the three countries account for more than 15% of monthly traffic.

Also a small fall for the Korean crypto exchange GOPAX

South Korea tops the list with an average of nearly 300,000 new visitors per month. That alone is worrying. There is, however, another link between Korea and FTX. The Seoul-based crypto exchange GOPAX has halted withdrawals and interest payments on its own savings product "GOFI". GOFI was launched in 2020 in partnership with Genesis. In a statement, GOPAX justified the withdrawal delays as follows:

"The withdrawal of the principal and the payment of interest on GOFi has been delayed because the products are provided by our business partner Genesis Global Capital, LLC."

Domino effect in the corporate web

But the relationship with Genesis isn’t as simple as GOPAX’s press release suggests. The platform is not only one of the largest lending services, but also a subsidiary of the Digital Currency Group (DCG). DCG also includes CoinDesk and Grayscale, the world's largest crypto-asset manager. As the second-largest shareholder, DCG also holds sizable stakes in GOPAX. Genesis and DCG are dealing with major liquidity shortfalls after the FTX collapse and have failed to secure a $1 billion emergency loan.

GOPAX demanded that Genesis "return all assets to protect customers' assets from the announcement". That request ultimately went unanswered. The company says it is working closely with Genesis and DCG to ensure customers can quickly redeem their balances. Because DCG holds shares in GOPAX, the relationship between the companies goes far beyond a pure partnership.

The government steps in

The South Korean government reacted immediately to the upheavals in the crypto sector and is already working on a broad regulatory package. The country’s top financial regulator, the FSC, has given provisional approval to a bill to create a fair and safe trading environment for digital assets. It’s also considering forcing exchanges to compensate investors for losses and imposing penalties for sudden suspensions of withdrawal services. There’s also a mandatory registration of user assets and a strict separation of customer deposits and company funds. It also needs to be discussed whether trading in exchange-issued tokens should be restricted or banned.