Explore South Korea's Crypto Culture: Love Cryptocurrency but Not DeFi?
Original author: IGNAS
Original 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 transactions and became the largest market for Ethereum.
Korean students check the price of Bitcoin during breaks, office workers trade while waiting in line for coffee, and elderly people participate in market transactions from home.
When the local Bitcoin price was 40% higher than US exchanges, the craze reached its peak. Coinmarketcap even removed the Korean price from the cryptocurrency market. This phenomenon is known as the "Kimchi Premium".
In 2018, when the government cracked down on speculative activities, this Kimchi Premium disappeared. First, the government enforced the use of real-name bank accounts for cryptocurrency transactions, and then banned ICOs that same year. The Kimchi Premium may have disappeared long ago, but the craze continues.
In 2022, South Korea ranked third in terms of Bitcoin trading volume, occupying 8.7% of the market. The United States ranks first with a 69.8% share, followed closely by Japan with an 11.3% share.
One explanation for this craze is South Korea's rapid adoption of new technologies, but there are also more factors: culture and narrative.
Understanding Korean Culture: The Miracle of the Han River
The Korean War from 1950 to 1953 made South Korea one of the poorest countries in the world. By 2023, it became one of the wealthiest.
Rapid economic growth can be attributed to family-owned conglomerates (called chaebols), emphasis on exports, hard work of the labor force, and the mentality of the Korean people. This mentality of acting quickly and efficiently.
The "bbali bbali" (fast) mentality permeates Korean lifestyles. Every second is important. Food must be delivered quickly, trains arrive on time, buildings are constructed in a matter of weeks. Whatever you do, do it quickly and efficiently. Getting rich quickly is no exception.
However, becoming wealthier has become more challenging. Since 2012, economic growth has slowed from double-digit growth in the 2000s to around 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 barely grown since 2011.
For a long time, alternatives have always been gambling.
A Quick Way to Get Rich - Gambling
The problem is that gambling is even illegal in Korea.
Games including lottery, horse racing, boat racing, and bicycle racing, as well as 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 rate of gambling addiction in Korea is two to three times higher than in other major countries. Although it is not clear how these statistics are collected at present, it is a widely spread social theory that Koreans are particularly susceptible to gambling addiction, which also affects the formulation of related laws.
Because other investments are restricted, cryptocurrency is seen as a quick way to get rich.
Koreans see cryptocurrency exchanges as a form of gambling, attempting to make a lot of money in a short period of time.
In the West, stories about cryptocurrency as "no longer limited to banks" or bitcoin as digital gold dominate. But in Korea, trust in the financial and banking industry is high, so the influence of these stories is relatively small.
In the end, the story of bitcoin as digital gold is not attractive enough because gold cannot dramatically increase in price by 100% in a day.
But altcoins can.
To keep traders engaged and bring an adrenaline rush, some local exchanges have become experts in meeting demand.
For example, delisting on a major exchange always attracts the attention of retail investors, but only in Korea is it also an opportunity to buy.
The delisting window requires a halt to deposits, so speculators drive up prices, seeking to profit before the token can no longer be traded. Naturally, delisting notices generate the same or even more attention among speculators as listings.
A more exciting feast is exchange maintenance. When deposits and withdrawals are closed, but trading is not disabled, this situation is referred to as "가두리" (a closed net used to catch fish). Similar to fish trapped in a net, a closed market is not dependent on external prices and cannot be arbitrated, making it a true feast for gamblers to trade in this environment.
Fairly speaking, this type of internal market trading is also popular in the stock market trading in South Korea, and cryptocurrencies provide new opportunities for using this technique.
Some exchanges even do not offer cryptocurrency deposits and withdrawals from the beginning, focusing on internal market trading.
However, cryptocurrency regulation follows...
Since 2021, exchanges must register with financial regulatory agencies.
All exchanges must have ISMS security licenses and real-name bank accounts (only 5 exchanges have both). The responsible person of an unregistered cryptocurrency exchange may face up to five years of imprisonment or a maximum fine of 50 million Korean won.
Cryptocurrency regulation imposes restrictions on cryptocurrency trading, requiring each investor to use a real-name bank account. This means that Koreans must open a real-name account at a bank supported by the exchange.
Koreans even need to register their withdrawal address at a local CEX, and report their deposits/withdrawals to their own wallets or other centralized exchanges.
The ultimate result of this regulation is the closure of hundreds of cryptocurrency exchanges.
Currently, there are only 5 exchanges with real-name bank accounts. One of the exchanges, Gopax, was supposed to be acquired by Binance, but a report published by a South Korean daily stated that the Financial Services Commission (FSC) is reviewing Binance's acquisition due to the recent lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Binance.
Why DeFi is not popular in South Korea
Considering all these changes and the continuous bear market of cryptocurrencies, the narrative of cryptocurrencies as a gambling alternative should prompt Koreans to turn to DeFi.
However, DeFi is not as popular in South Korea as it is in the West, despite the efforts of major blockchain companies in South Korea.
For example, Klaytn is the largest Layer 1 blockchain in South Korea, with its own DeFi, NFT, and GameFi ecosystem. Klaytn is supported by Kakao, a Korean equivalent of Facebook, and has 53 million active users. There is even a Klaytn wallet in Kakao Messaging App.
As of the time of writing this article, there are 34 DeFi applications on Klaytn (DefiLlama data), with a total locked value (TVL) of $123 million. This is a decent number, but in reality, the adoption of DeFi in Korea is low.
According to my personal conversations with Koreans involved in cryptocurrency investment, I have noticed that only a few people show interest in DeFi. Even my colleagues who work at a cryptocurrency exchange have little enthusiasm for DeFi, and only a few are familiar with setting up a Metamask wallet.
They have various motivations for avoiding DeFi, but I 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 already provide sufficient trust.
Compared to centralized exchanges, DeFi is more difficult to use: wallets, private keys, withdrawals, and deposits are all "annoying," and the user interface and experience of DeFi applications themselves are not adapted for the Korean market.
Centralized exchanges provide enough entertainment for those pursuing quick wealth (gambling) without needing to gamble on decentralized exchanges.
Lack of Korean content. DeFi terminology is complex and targeted towards English users.
Annualized returns in single or even double digits are not appealing to speculators who prefer leveraged trading on exchanges (derivatives trading is prohibited in Korea).
Since I am not Korean myself, I consulted my friends Doo and Garlam for insight. Doo is the Chief Operating Officer of StableLab and a Growth AVC member of MakerDAO. Garlam is an Executive Partner at Momentum 6.
Question 1: Why do you think DeFi is not as popular in Korea, despite the popularity of cryptocurrency?
Doo:
Although Korean users show interest in aspects of DeFi such as lending and yields, the use of self-custody options like Ledger and MetaMask is not widespread.
In addition, most DeFi applications and websites are written in English, which is a significant barrier for Korean users.
Recently, the situations of Haru Invest and Delio closing withdrawals have demonstrated this, prompting many users to choose Korean-friendly centralized finance (CeFi) platforms to experience "DeFi-like" lending and yields.
Garlam:
I believe there are three key factors:
Structure: Traditional banking systems have strict structures and clear guidelines, making it difficult for some people to adopt the rapidly evolving DeFi. For example, some people still find it difficult to use Google Chrome for banking transactions because certain anti-hacking, key tracking, and authentication software is only supported on Internet Explorer. This rigid structure has led many people to turn to familiar platforms like centralized exchanges.
Busyness: The busy work and social schedules of Koreans limit their ability to keep up with the rapid development of DeFi. Many people are either too busy or too complacent to invest time in 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 starts with high-risk, high-return projects and then transitions to safer blue-chip DeFi. Due to the time zone difference between Korea and where most project releases and updates occur in the US, many Koreans often miss out on opportunities. This, combined with the need to constantly monitor English news (which is not commonly used in Korea), results in a poor initial experience with DeFi and hinders their ability to keep up with the pace of development.
Question 2 : What changes are needed for DeFi to be adopted in Korea?
Doo:
There are two main approaches (although not mutually exclusive) to achieve this goal. One is to make it more "Korea-friendly" by providing Korean materials and websites.
The other is to collaborate with popular centralized entities. For example, Coinone is one of the few major Korean exchanges that has integrated DeFi earning positions, allowing its users to benefit from these DeFi earnings.
This is a step towards gradually guiding users to directly use DeFi in a non-custodial manner.
Garlam:
Very simple. Koreans need to make money from Korean DeFi. Once they taste the sweetness, the enthusiasm will start.
Question 3 : What do DeFi protocols and communities need to do to attract Korean users to participate in DeFi?
Doo:
The methods of attracting Korean users vary 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 often determines the difficulty of attracting users.
For example, options and insurance are complex products that most Korean users find difficult to understand. Therefore, such protocols may be more successful in attracting Korean users to trade their tokens rather than using their products.
For simpler DeFi products, marketing and most importantly, acquisition channels need to be considered. Marketing can be done passively or 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 collaborate with Korean centralized financial platforms or Korean-friendly crypto wallet companies that can provide DeFi products.
Compared to other regions, mobile wallets are the preferred method of accessing cryptocurrencies in Korea.
Garlam:
Localization - Korea is a culturally homogeneous market. Without a genuine Korean team operating in Korea, it would be difficult for a team to enter the Korean market.
KOLs and Media - they are the preferred mediums for people to exchange information. Identify excellent and poor participants in Telegram and Kakao groups and educate the admins of these groups (even providing them with promotional budgets). This may bring the highest return on investment for expansion.
Break the ice - as mentioned above, when in doubt, people tend to revert to their default mode. Trading tokens on Korean exchanges allows them to familiarize themselves with the token's name and historical price. Once people are able to gain some benefit from the token, they are more likely to participate in the entire ecosystem.
