Upbit and Bithumb agreed to compensate their users $2.5 million. The stock exchange agreed to compensation due to technical malfunctions during the declaration of martial law in December.
The 3.5 billion won payout is the largest digital asset payout in South Korea’s cryptocurrency history. Last month, the sudden declaration of martial law led to a system failure on Upbit and Bithumb, causing a spike in traffic on both exchanges.
Upbit and Bithumb are offering compensation of more than 3.5 billion won
🇰🇷 JUST IN: South Korea’s largest cryptocurrency exchange payout in history!
Upbit and Bithumb will compensate investors $2.4 million for losses resulting from a network outage in December 2023. pic.twitter.com/OiUcmoriWe
-Quinyad (@Quinyad) January 22, 2025
The data indicated that Upbit is set to pay more than 3.14 billion won (about $2.2 million) for 596 cases. Bithumb is also expected to reimburse 377 million won (about $264,000) for 124 cases. Both South Korean exchanges are still finalizing talks with users, which means the final payout may increase slightly.
Upbit revealed that the number of its users rose from 100,000 to over 1.1 million in a short period. The company also said the spike caused its systems to shut down for 99 minutes. Bithumb also recorded a 62-minute downtime after martial law was declared.
Both exchanges revealed that the influx disrupted users’ access to the exchanges, causing delays and even cancellations of cryptocurrency withdrawals and Korean won deposits.
The failure of exchanges to manage the slight increase in users during the martial law incident has drawn scrutiny from the country’s financial watchdogs over their management practices. The Financial Supervisory Authority responded by resuming on-site inspections of both exchanges on Monday, continuing its efforts since last month.
Reports submitted to the FSS revealed that both exchanges have implemented server expansion measures. Exchanges have also implemented cloud migrations and business continuity plans (BCP). The FSS emphasized that inspections will evaluate the effectiveness of these measures.
“Financial authorities and virtual asset exchanges must develop practical and concrete measures, such as server expansions and BCP improvements, to prevent system failures and create a safe and reliable cryptocurrency ecosystem.”
-representative. Kim Hyun Joong of the Democratic Party of Korea.
Kim also said that the institutional framework for investor protection remained inadequate despite the rapid growth in cryptocurrency investors.
Upbit had previously compensated 50 cases with a total remuneration of 11.4 million won in 2022. Bithumb also compensated 29 cases with 94 million won in 2023.
The latest compensation cases trace back to the martial law incident that occurred on December 3, which led to a significant increase in the number of panicked South Korean investors. After Yoon declared martial law, the price of Bitcoin dropped from 130 million won to 88 million won.
Upbit faces sanctions from South Korean financial authorities
The Financial Intelligence Unit (FIU) of the FSS is also seeking to impose sanctions on Upbit for the alleged violation of more than 500,000 “know your customer” verification procedures. Penalties will also be imposed on the stock exchange for non-compliance with anti-money laundering obligations.
The cryptocurrency market was placed within South Korea’s regulatory framework last July with the launch of the Virtual Asset User Protection Law.
The country’s financial watchdog is also said to be investigating Upbit’s dealings with unregistered virtual asset operators. South Korea refers to unregistered virtual asset operators as those that operate without registering as virtual asset companies under the Reporting and Use of Specific Financial Transaction Information Act.
A FIU field inspection identified multiple instances in which Upbit members transferred cryptocurrencies to exchanges classified as unregistered virtual asset operators. The financial watchdog said it may issue sanctions on Upbit, including restricted cryptocurrency withdrawals for new customers, penalties for executives and employees, and fines. The FIU also proposed a 6-month ban on registering a new user on a cryptocurrency exchange.
The FIU is expected to finalize the sanctions after receiving clarifications from Donamo, Upbit’s operator, during a Sanctions Review Committee meeting yesterday.
Eth_apple, CEO of Searchfi, He said Sanctions imposed on Upbit could create a less favorable environment for projects and investors in Korea. He also believes the sanctions could open the door for major global stock exchanges to enter the Korean market.
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