South Korea Considers Raising Exchange Cold Wallet Requirements to 99%

The South Korean Financial Services Commission (FSC) is weighing a significant regulatory shift that would require cryptocurrency exchanges to store nearly all user assets in offline storage. Following an emergency security inspection meeting held on November 2, 2026, authorities discussed increasing the mandatory cold wallet custody ratio from the current 80% to a stringent 99%. This proposal comes as a direct response to global security vulnerabilities, including recent high-profile exploits such as the Binance theft incident, highlighting the government's commitment to fortifying the domestic virtual asset ecosystem.

Impact on Major Trading Platforms and Compliance

Under the existing Virtual Asset User Protection Act, South Korean exchanges are legally obligated to keep at least 80% of user funds in cold wallets—storage solutions that are not connected to the internet and are thus less susceptible to hacking. However, the FSC's new direction aims to align the entire industry with the standards already maintained by market leaders. Current custody data for major platforms reveals a diverse landscape of compliance:

• Upbit: Currently maintains a custody ratio exceeding 99%.
• Bithumb: Operates with approximately 94% of assets in cold storage.
• Coinone: Reports a ratio of 85%.
• GOPAX: Maintains a level slightly above 80%.

While Upbit already meets the proposed threshold, other Tier-1 and Tier-2 exchanges would need to overhaul their liquidity management protocols to comply with the prospective 99% mandate.

Liquidity Concerns and Operational Challenges

The move toward near-total cold storage has sparked concerns among industry insiders regarding exchange liquidity and user experience. By reducing the volume of assets held in "hot wallets"—online servers used for immediate transaction processing—exchanges may face difficulties in facilitating rapid withdrawals. Experts warn that a 99% requirement could lead to significant withdrawal delays, particularly during periods of high market volatility when trading volume for assets like Bitcoin (BTC) or Ethereum (ETH) spikes.

Increasing the proportion would reduce the assets available in hot wallets for immediate withdrawal, potentially leading to withdrawal delays and increasing the operational burden on small and medium-sized exchanges.

Smaller trading platforms are expected to face the heaviest operational burden, as they often lack the sophisticated automated cold-to-hot transfer infrastructure possessed by larger entities. This follows historical precedents, such as the technical hurdles experienced by Bithumb in August of this year, which underscored the delicate balance between security and accessibility.

The FSC's initiative reflects a broader global trend of tightening oversight on Centralized Exchanges (CEXs). While the 99% rule would undeniably enhance the safety of user deposits against external cyberattacks, the regulatory body must now evaluate whether the systemic benefits of enhanced security outweigh the potential risks to market efficiency. As the South Korean government continues its inspection of the blockchain sector, the final decision will likely set a new international benchmark for digital asset custody standards.