South Korea demands stronger crypto safeguards following Binance hack

The article was updated with information from News1 Korea.

South Korea’s Financial Services Commission has directed domestic cryptocurrency exchanges to hold more assets in cold wallets and strengthen their financial reserves following the $6.3 billion Binance hack on October 29.

According to a November 2 report by ChosunBiz, the regulator convened an emergency meeting with major virtual asset service providers to review their security arrangements and assess whether the incident had affected South Korea’s cryptocurrency market.

The meeting was chaired by Yu Young-jun, the FSC’s director of digital finance policy, and included representatives from the Financial Supervisory Service, the Financial Security Institute and the Digital Asset eXchange Alliance (DAXA).

Officials examined how domestic exchanges manage access to their internal systems, approve cryptocurrency withdrawals and control administrator privileges. Exchanges were subsequently asked to strengthen their security procedures, maintain additional reserves and prepare for suspicious transactions or unauthorized access attempts.

South Korea pushes exchanges to hold more crypto in cold wallets

Under South Korea’s Virtual Asset User Protection Act, cryptocurrency service providers must already hold at least 80% of customers’ deposited digital assets in cold wallets, which remain disconnected from the internet.

According to a November 3 report by News1 Korea, authorities are considering raising the mandatory cold wallet storage ratio to as much as 99%, a level already maintained by some of the country’s largest exchanges.

The proposal was discussed during the emergency security meeting held the previous day. If adopted as a uniform requirement, several exchanges would have to change how they manage customer assets, particularly smaller operators that currently maintain cold wallet holdings closer to the existing 80% minimum.

The current ratios differ considerably between exchanges, according to Financial Supervisory Service data submitted to Democratic Party lawmaker Min Byeong-deok and reported by The Herald Business.

As of the end of September, Upbit held 99.17% of customer assets in cold storage, followed by Bithumb at 94.76% and Coinone at 85%. DigitalEx and GOPAX reported ratios of 82.79% and 80.54%, respectively.

The regulator’s instructions extended beyond wallet storage. Exchanges were asked to maintain continuous monitoring of deposits and withdrawals, assign additional personnel to incident response and establish procedures for promptly sharing information about abnormal access attempts.

Through DAXA, authorities requested reports on exchange-level deposit and withdrawal activity associated with the Binance incident.

Could a 99% cold wallet requirement delay crypto withdrawals?

Industry representatives have raised concerns that requiring exchanges to keep 99% of customer assets in cold storage could affect how quickly they process withdrawals, particularly during periods of heavy trading activity.

For an exchange holding 10,000 units of a cryptocurrency, an 80% cold storage requirement would allow up to 2,000 units to remain in hot wallets and other storage arrangements. Raising the requirement to 99% would reduce that amount to just 100 units, leaving exchanges with fewer assets immediately available to meet withdrawal requests.

Smaller exchanges could face more difficulties because they generally hold fewer assets than larger platforms. According to News1 Korea, customers attempting to move cryptocurrencies between exchanges during sudden price movements could experience delays if operators need additional time to transfer funds from cold storage.

Such delays have occurred previously. In August, Bithumb experienced withdrawal delays lasting approximately 13 hours for certain altcoins. The exchange attributed the disruption to insufficient hot wallet balances and the time required to transfer additional assets from cold storage.

An industry official cited by News1 Korea acknowledged the regulator’s efforts to improve security but warned that higher cold wallet ratios alone would not prevent attacks involving compromised internal systems or stolen withdrawal permissions. The official urged authorities to consider the financial resources and operational capabilities of smaller exchanges before introducing a uniform requirement.

Binance hack prompts scrutiny of withdrawal approval systems

The October 29 attack resulted in approximately $6.3 billion in unauthorized cryptocurrency withdrawals from Binance’s hot wallets, making it the largest single cryptocurrency theft reported to date.

Unlike offline storage, hot wallets remain connected to the internet so exchanges can process customer transactions and withdrawals.

Investigators have examined whether attackers gained access to Binance’s internal systems through an employee’s compromised work laptop and subsequently interfered with the mechanisms used to authorize transactions.

As previously covered by crypto.news, the attack involved transactions across multiple blockchain networks, while blockchain security firms traced the movement of stolen assets and identified attempts to transfer funds out of affected wallets.

Exchanges face additional reserve requirements

Beyond cryptocurrency custody, authorities urged exchanges to build up financial reserves that could be used to respond to security incidents.

South Korea’s existing user protection framework requires virtual asset service providers to maintain financial safeguards through insurance, mutual aid arrangements or dedicated reserves.

For exchanges handling Korean won transactions, the reserve requirement can be at least 3 billion won, depending on the applicable arrangements.

The FSC did not specify how much additional money individual exchanges would need to set aside.

Binance continues replacing stolen assets and restoring withdrawals

Meanwhile, Binance has continued replenishing the cryptocurrencies stolen during the breach while gradually restoring access to withdrawals.

The exchange completed reserve verification for ten major cryptocurrencies on November 2, allowing customers to check whether their holdings were backed by sufficient assets.

Binance said it had replaced approximately 95% of the affected cryptocurrencies by November 1, using its Secure Asset Fund for Users, Futures Insurance Fund and corporate treasury resources.

The remaining assets consisted primarily of less liquid tokens that required additional time to acquire.

On November 3, Binance restored withdrawals for 51 additional tokens across Ethereum and Solana, including LINK, SHIB, ONDO and BONK.

Binance has scheduled another Proof of Reserves snapshot for November 4, covering more cryptocurrencies than the ten assets included in its previous verification.