South Korea hit hard by FTX crash

On November 11th, 2022, FTX reported officially bankruptcy on. Sam Bankman-Fried’s company took the entire industry down with it, leaving millions of aggrieved investors in its wake. The platform was particularly popular in Asian countries. South Korea, Singapore and Japan had, according to one Analysis by CoinGecko, registering a total of 762,000 monthly user hits. The three countries thus accounted for over 15% of the monthly traffic.

Turbulence also at Korean crypto exchange GOPAX

South Korea is the leader with almost 300,000 hits on a monthly average. That alone is worrying. However, there is another connection between Korea and FTX. The Seoul based Crypto exchange GOPAX has halted withdrawals and interest payments from its internal savings product “GOFI”. GOFI was launched in 2020 in collaboration with partner company Genesis. in one statements GOPAX justifies the payment delays as follows:

“The withdrawal of principal and the issuance of interest on GOFi has been delayed because the products from our business partner Genesis Global Capital, LLC. to be provided”.

Domino effect in the corporate network

However, the relationship with Genesis is not as simple as GOPAX’s press statement suggests. The platform is not only one of the largest lending services, but also a subsidiary of Digital Currency Group (DCG for short). The DCG also includes Coindesk and the largest crypto asset manager in the world, Grayscale. As the second largest shareholder, DCG also owns significant shares in GOPAX. Genesis and the DCG are struggling with significant liquidity bottlenecks as a result of the collapse of FTX and have unsuccessfully tried to find one $1 billion emergency loan.

GOPAX requested Genesis to “take back all assets to protect client assets prior to the announcement.” Ultimately, this wish remained unfulfilled. It also says that they are working in close cooperation with Genesis and the DCG to ensure that customers will soon be able to redeem their assets again. Due to the company shares that DCG holds in GOPAX, the relationship between the companies obviously goes well beyond the description of a purely partnership relationship.

Government agencies step in

The South Korean government reacted immediately to the eruptions in the crypto sector and is already working on a comprehensive regulatory package. The country’s top financial regulator, the FSC, gave its tentative approval to a bill to create a fair and safe trading environment for digital assets. The FSC is also considering requiring crypto exchanges to compensate investors for losses and imposing penalties for the sudden suspension of withdrawal services. In addition, a mandatory register of user assets is planned and a strict separation of customer deposits and working capital is planned. It should also be debated whether trading in the exchanges’ proprietary tokens should be restricted or banned.