Korea's Crypto Craze and the 'Kimchi Premium'

•

Korea, the 3rd largest crypto market, flies under the radar on Crypto Twitter. After living there for 8 years, I learned about fascinating differences in their crypto mindset compared to the West. Here's why Koreans are crazy for crypto but not #DeFi 🇰🇷

In 2017, Korea became a hotspot for Bitcoin, accounting for a crazy 20% of all Bitcoin trades globally. This craze saw local Bitcoin prices soar, up to 40% higher than US exchanges - an opportunity SBF's Alameda Research enjoyed. This gave birth to the 'Kimchi premium'.

Then the government clamped down on speculation in 2018, pushing the 'Kimchi premium' out of sight. But did the fever die? Not at all. In 2022, Korea held the third position in Bitcoin trading volume, contributing 8.7% of the global market.

This Korean crypto fervor can be traced back to a few factors. A prominent one is the cultural narratives. Post the Korean War, South Korea transformed from one of the poorest to one of the richest countries in the world, a phenomenon dubbed 'Miracle on the Han River.'

This rapid growth was driven by family-owned conglomerates known as chaebols, emphasis on exports, the hardworking labor force, and the Korean mentality, summarized as 빨리 빨리 - 'Fast! FAST!'. This push for swift economic advancement is deeply ingrained in Korean society.

Yet, since 2012, the roaring economic growth slowed down to around 3%. TradFi tools like stocks and real estate became less attractive due to expensive real estate and rising interest rates. As an alternative, crypto emerged as a high-risk, high-reward play.

With gambling being largely illegal in Korea, crypto exchanges became the go-to platforms for thrill-seeking speculators. At one moment there were 250+ crypto exchanges in Korea. Western crypto narratives of 'unbanking the bank', or BTC as digital gold matter less here.

Korean crypto exchanges became pros at keeping traders engaged. Even delistings offer opportunities. When deposits & withdrawals are closed, similar to fish caught in a net, arbitrage isn't possible, making trading in this environment a true feast for speculators.

However, stricter crypto regulations were introduced in 2021, requiring all exchanges to use real-name bank accounts. This led to the closure of 95% of crypto exchanges. Despite these challenges, crypto remained popular, yet DeFi didn't gain as much traction. Why?

Even Klaytn, the biggest Layer 1 backed by 'Korean Facebook' Kakao, with its own DeFi, NFT & GameFi ecosystems, struggles to increase DeFi adoption. With 34 dApps and 132M in TVL, Klaytn is doing ok, but real DeFi adoption in Korea is low. twitter.com/DefiIgnas/status/1556519961400836096

The barriers to #DeFi adoption in Korea are: • Higher trust in financial systems and major CEXes • DeFi’s perceived complexity • Lack of educational content in Korean • Low APYs compared to high-risk, high-reward alternatives

In an attempt to gain more clarity on DeFi's low adoption, I reached to two actual Koreans. • @DooWanNam COO at @StableLab & Growth AVC Member at MakerDAO • @GarlamWON Managing Partner at Momentum 6.

Doo pointed out that language barriers and lack of Korean-friendly CeFi platforms could deter Koreans from DeFi. Garlam added that the rigid structure of the traditional banking system, Koreans' hectic lifestyle, and timezone differences make DeFi difficult to adopt.

Doo & Garlam offer advice for DeFi platforms entering Korea: - "Korean-friendly" platforms and partnerships - Local DeFi teams, engagement with KOLs and media - Tokens traded on Korean CEXes Check the full interview in my blog post below: twitter.com/DefiIgnas/status/1679490756208381954