Korean Crypto’s “Kimchi Culture”: Not Interested in DeFi Yield, Prefers High Volatility Altcoins
Korean Crypto Prefers High Volatility Altcoins, Not DeFi Yield
Author: IGNAS; Translation: Deep Tide TechFlow
In South Korea, almost everyone knows about Bitcoin.
In 2017, this country with a population of over 50 million completed 20% of all Bitcoin trades, and became the largest market for Ethereum.
Korean students check the price of Bitcoin during recess, office workers trade Bitcoin while waiting in line for coffee, and the elderly participate in market transactions from home.
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When the local Bitcoin price was 40% higher than that on American exchanges, the frenzy reached its peak. Coinmarketcap even removed the Korean price from cryptocurrency quotes. This phenomenon is known as the “kimchi premium”.
In 2018, when the government cracked down on speculative activities, the kimchi premium disappeared. First, the government forced the use of real-name bank accounts for cryptocurrency transactions, and then banned ICOs in the same year. The kimchi premium may have disappeared long ago, but the frenzy continues.
In 2022, South Korea ranks third in Bitcoin trading volume, accounting for 8.7% of the market. The United States ranks first with a share of 69.8%, followed by Japan with a share of 11.3%.
One explanation for this frenzy is South Korea’s rapid adoption of new technology, but there are more factors: culture and narrative.
Understanding Korean Culture: The Miracle on the Han River
The Korean War from 1950 to 1953 made South Korea one of the poorest countries in the world. By 2023, it had become one of the richest countries.
Rapid economic growth is attributed to family business groups (called chaebols), emphasis on exports, hardworking labor force and Korean mentality. The mentality of taking quick action and efficiently completing tasks.
The “ppalli ppalli” (fast) mentality permeates Korean lifestyle. Every second counts. Food must be delivered quickly, trains arrive on time, and buildings are built within weeks. Whatever you do, do it quickly and efficiently. Getting rich quickly is no exception.
However, becoming richer is becoming more and more difficult. Since 2012, economic growth has slowed from double-digit growth in the 2000s to about 3%. Therefore, ways to get rich include investing in stocks or real estate, but the market is not suitable for everyone.
Due to the lack of high-risk investments, the attractiveness of real estate and domestic stocks decreases when real estate prices are expensive and interest rates rise. Derivatives trading has strict certification requirements, and the overall technology stock index KOSDAQ has hardly grown since 2011.
For a long time, alternatives have been gambling.
The way to get rich quickly-gambling.
The problem is that gambling is even illegal in South Korea.
Games including lottery, horse racing, boat racing and bicycles, and casino gambling are all illegal-even for Koreans traveling abroad.
According to data from the Korean Gambling Problem Center established by the Korean government in 2012, the gambling addiction rate in Korea is two to three times higher than that in other major countries. Although it is not clear how these statistics are counted, the theory that Koreans are particularly prone to gambling addiction is a widely circulated social theory, which also affects the formulation of relevant laws.
Since other investments are restricted, cryptocurrencies are seen as a way to get rich quickly.
Koreans see cryptocurrency exchanges as gambling and try to make a lot of money in a short period of time.
In the West, stories about cryptocurrencies as “no longer limited to banks” or Bitcoin as digital gold dominate. But in Korea, there is a high degree of trust in finance and banking, and the influence of these stories is small.
In the final analysis, the story of Bitcoin as digital gold is not attractive enough, because gold cannot skyrocket 100% in price in one day.
But the altcoin can.
To maintain the participation of traders and bring adrenaline soaring, some local exchanges have become experts in meeting demand.
For example, a listing on a major exchange always attracts the attention of retail investors, but only in Korea, delisting from an exchange is also an opportunity.
The delisting window requires a halt to deposits, so speculators drive up the price with restricted flow of new tokens, getting in on the last bit of profit before trading is disabled. Naturally, the delisting notice garners just as much, if not more, attention from speculators than the initial listing.
The more exciting feast is maintenance of the exchange. When deposits and withdrawals are shut down, but trading remains enabled, this is called a “gaduri” (a closed net used to load live fish). Similar to fish unable to escape the net, a closed market doesn’t rely on external prices and is unable to be arbitraged, making trading in this environment a true feast for gamblers.
Fairly, this type of internal-market trading is also popular in Korea’s stock trading, and cryptocurrency provides a new opportunity for using this method.
Some exchanges don’t even open cryptocurrency deposits and withdrawals from the beginning, focusing on internal-market trading.
But, cryptocurrency regulation comes with it…
Since 2021, exchanges must register with financial regulatory agencies.
All exchanges must have an ISMS security license and real-name bank accounts (only 5 exchanges have both). Cryptocurrency exchange officials who fail to register may face up to five years in prison or fines of up to KRW 50 million.
Cryptocurrency regulations impose restrictions on cryptocurrency trading, requiring each investor to use a real-name bank account. This means Koreans must open a real-name account at a bank supported by the exchange.
Koreans even need to report deposit/withdrawal to their own wallets or other centralized exchanges by registering a withdrawal address at a local CEX.
The ultimate result of the regulation has been the closure of hundreds of cryptocurrency exchanges.
Currently, only five exchanges have real-name bank accounts. One of them, GoBlockingx, was supposed to be acquired by Binance, but a Korean daily reported that the Financial Services Commission (FSC) is reviewing Binance’s acquisition due to the recent lawsuit filed by the US Securities and Exchange Commission (SEC) against Binance.
Why DeFi isn’t popular in Korea
Considering all these changes and the ongoing cryptocurrency bear market, the narrative of cryptocurrency as a gambling substitute should prompt Koreans to turn to DeFi.
However, DeFi is not as popular in Korea as it is in the West, despite efforts by Korea’s major blockchain companies. For example, Klaytn is Korea’s largest layer-one blockchain with its own DeFi, NFT, and GameFi ecosystem. Klaytn is backed by Kakao, Korea’s Facebook equivalent, with 53 million active users. Klaytn even has a wallet in the Kakao Messaging App.
As of this writing, there are 34 DeFi apps on Klaytn (DefiLlama data) with a total locked value (TVL) of $123 million. That’s not a bad number, but in reality, DeFi adoption in Korea is low.
Based on my personal conversations with Koreans involved in cryptocurrency investing, I have noticed that only a few people show interest in DeFi. Even my colleagues at a cryptocurrency exchange where I work don’t have much love for DeFi, and only a few are familiar with setting up a Metamask wallet.
Their motivations for avoiding DeFi differ, but I now believe the main reasons are as follows:
In a society with higher trust in the financial system, the benefits of self-custody are not enough to attract people, and major centralized exchanges like Upbit and Bithumb provide enough trust.
DeFi is more difficult to use than centralized exchanges: wallets, private keys, withdrawals, and deposits are all “annoying,” and the user interfaces and experiences of DeFi applications themselves are not tailored to the Korean market.
Centralized exchanges provide enough entertainment for those pursuing quick riches (gambling), without the need to gamble on decentralized exchanges.
Lack of Korean content: DeFi terminology is complex and targeted at English speakers.
Single or even double-digit annualized returns are not attractive to speculators who prefer leverage trading on exchanges (derivatives trading is prohibited in Korea).
Since I myself am not Korean, I consulted my friends Doo and Garlam. Doo is the COO of StableLab and a growth AVC member of MakerDAO; Garlam is the managing partner of Momentum 6.
Question 1: Why do you think that despite the popularity of cryptocurrency in Korea, DeFi is not as popular in Korea?
Although Korean users have shown interest in aspects of DeFi such as lending and yield, the use of self-custody options like Ledger and MetaMask is not common.
Additionally, most DeFi applications and websites are written in English, which is a significant barrier for Korean users.
Recently, the closure of withdrawals by Haru Invest and Delio has demonstrated this, prompting many users to choose Korean-friendly centralized finance (CeFi) platforms to experience “DeFi-like” lending and yield.
I think there are three key factors:
Structure: Traditional banking systems have strict structures and clear guidelines, making it difficult for some to adopt the constantly evolving DeFi. For example, some people still have trouble doing banking on Google Chrome because certain anti-hacker, key tracking, and authentication software is only supported on Internet Explorer. This rigid structure has led many people to turn to familiar platforms such as centralized exchanges.
Busy: Koreans’ busy work and social schedules limit their ability to keep up with DeFi’s rapid developments. Many are either too busy or too complacent to devote time to understanding this constantly evolving field, especially if the information is provided in a foreign language and only remains relevant for a short period of time.
Timing: Participation in DeFi often begins with high-risk, high-return projects and then moves on to safer blue-chip DeFi. Due to the time zone difference between Korea and where most projects are released and updated in the United States, many Koreans often miss out on opportunities. This, combined with the need to constantly monitor English news (which is not commonly used in Korea), has resulted in a poor initial experience with DeFi and hindered their ability to keep up with developments.
Question 2: What changes need to be made for DeFi to be adopted in Korea?
There are two main approaches (although not mutually exclusive) to achieve this goal. One is to be more “Korea-friendly” by providing Korean materials and websites.
The other is to work with popular centralized entities. For example, Coinone is one of the few major Korean exchanges that has already integrated DeFi yield positions, allowing its users to benefit from these DeFi yields.
This is a step-by-step guide to directly using DeFi in a non-custodial manner.
Very simple. Koreans need to make money from Korean DeFi. Once they taste the sweetness, the frenzy will begin.
Question 3: What do DeFi protocols and communities need to do to attract Korean users to participate in DeFi?
The method of attracting Korean users varies depending on the DeFi protocol. For some protocols, attracting Korean users may be more challenging than other protocols.
The complexity of the project’s products usually determines the difficulty of attracting users.
For example, options and insurance are complex products that most Korean users have difficulty understanding. Therefore, such protocols may be more successful in attracting Korean users to trade their token trades rather than using their products.
For simpler DeFi products, marketing and, most importantly, acquisition channels need to be considered. Marketing can be done passively and actively.
Passive methods include translating the website into Korean and providing Korean guides so that users can easily find and use them. Active methods may include participating in interviews and speaking at events in Korea.
Maintaining a Korean Telegram or Kakaotalk group may also be beneficial. In terms of acquisition channels, protocols need to work with Korean centralized financial platforms or Korean-friendly cryptocurrency mobile wallet companies that can provide DeFi products.
Compared with other regions, mobile wallets are the preferred way for Koreans to access cryptocurrencies.
Localization-Korea is a highly culturally single market. Without a truly Korean team operating in Korea, the team will have difficulty entering the Korean market.
KOL and media-they are the preferred medium for people to exchange information. Identify the good and bad participants in Telegram and Kakao groups, and educate the administrators of these groups (and even provide them with promotion budgets). This may bring the highest return on investment for expansion.
Confirmation Bias – As mentioned earlier, in times of uncertainty, people tend to default to their default mode. Tokens traded on Korean exchanges allow them to become familiar with their names and historical prices. Once people are able to derive some benefit from tokens, they are more likely to participate in the entire ecosystem.