Upbit, Bithumb to pay largest-ever South Korean compensation for system failures during martial law

Upbit and Bithumb have agreed to compensate their users with $2.5 million. The exchanges agreed to the compensation because of technical failures during the December martial law declaration. The 3.5 billion won payout is the largest digital asset compensation in South Korea’s crypto history. Last month, the sudden martial law announcement led to system failures in Upbit and Bithumb, which caused a huge traffic spike in both exchanges. Upbit and Bithumb offer to compensate over 3.5 billion won 🇰🇷 JUST IN: South Korea’s largest crypto exchange payout in history! Upbit and Bithumb to reimburse investors $2.4M for losses caused by a December 2023 network outage. pic.twitter.com/OiUcmoriWe — Coinyad (@Coinyad) January 22, 2025 The data indicated that Upbit is set to pay over 3.14 billion won (about $2.2 million) for 596 cases. Bithumb is also expected to compensate 377 million won (about $264K) for 124 cases. Both South Korean exchanges are still finalizing talks with users, meaning the final payout might increase slightly. Upbit revealed its user count surged from 100,000 to over 1.1 million in a short period. The firm also said the uptick caused 99 minutes of downtime in its systems. Bithumb also recorded 62 minutes of downtime after the martial law announcement. Both exchanges revealed that the influx disrupted users’ access to the exchanges, causing delays and even cancellation of cryptocurrency withdrawals and Korean won deposits. The exchanges’ failure to manage the uptick in users during the martial law incident drew scrutiny from the country’s financial watchdogs over their management practices. The FSS responded by resuming on-site inspections of both exchanges on Monday, continuing its efforts from last month. Reports submitted to the FSS revealed that both exchanges had implemented server expansion measures. The exchanges also implemented cloud migrations and business continuity plans (BCP). The FSS maintained that the inspections will assess the effectiveness of these measures. “Financial authorities and virtual asset exchanges must develop practical and concrete measures, such as server expansions and BCP enhancements, to prevent system failures and establish a secure and reliable cryptocurrency ecosystem.” -Rep. Kim Hyun-jung from 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 pay of 11.4 million won in 2022. Bithumb had also compensated 29 cases with 94 million won in 2023. The latest compensation cases stemmed from the December 3 martial law incident that significantly increased the number of panicking South Korean investors. After Yoon’s martial law announcement, 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) under the FSS is also pursuing sanctions against Upbit for the alleged breach of 500,000+ Know Your Customer verification procedures. It will also pursue sanctions against the exchange for noncompliance with anti-money laundering obligations. The cryptocurrency market was brought under South Korea’s regulatory framework last July with the launch of the Act on the Protection of Virtual Asset Users. The country’s financial watchdog is also reportedly 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 businesses under the Act on Reporting and Using Specified Financial Transaction Information. FIU’s on-site inspection identified multiple cases where Upbit’s members transferred cryptocurrencies to exchanges classified as unregistered virtual asset operators. The financial watchdog said it could issue Upbit with sanctions, including restricted cryptocurrency withdrawals for new customers, penalties for executives and employees, and fines. FIU also proposed a 6-month ban on new user registration in the cryptocurrency exchange. The FIU is expected to finalize the sanctions after receiving explanations from Dunamu, the operator of Upbit, during yesterday’s sanctions review committee meeting. Eth_apple, CEO of Searchfi, said that the sanctions on Upbit could create a less favourable environment for projects and investors in Korea. He also believes that the sanctions could open the door for major global exchanges to enter the Korean market. Land a High-Paying Web3 Job in 90 Days: The Ultimate Roadmap