A ₩20 Gap between Tether and the Exchange Rate: Which Is Expensive?

The exchange rate is ₩1,380, but Tether (USDT) costs ₩1,400 in the KRW market. When you see this ₩20 "gap between the Tether price and the exchange rate", it is easy to get confused about which number to trust.

To give the answer first: both are real prices. They differ only because they are set in different markets.

The exchange rate and the won price of Tether are set in different places

The exchange rate is the value at which one dollar is exchanged into won on the foreign exchange market. Tether (USDT) is a coin designed so that one coin tracks the value of one dollar. So in theory, the won price of one Tether should be close to the exchange rate.

But the KRW market is a market inside an exchange where coins are bought and sold, and there Tether is traded like any other coin. When more people want to buy it, it becomes more expensive than the exchange rate; when more people want to sell it, it becomes cheaper.

This difference is called the Tether premium. It is calculated as (won price of Tether ÷ exchange rate − 1) × 100.

• 1,400 ÷ 1,380 is about 1.0145, so the Tether premium is about +1.45%.
• If Tether is ₩1,360, 1,360 ÷ 1,380 is about 0.9855, so it is about −1.45%, which means Tether is cheaper than the exchange rate.

So the question in the title can be answered like this: the expensive one is Tether. You are effectively paying about ₩20, or about 1.45%, more than the exchange rate to buy it.

How the kimchi premium differs on an exchange-rate basis and a Tether basis

The kimchi premium (kimp) is a ratio showing how much more expensive the same coin is in Korea than abroad. If you convert the overseas price into won with the exchange rate, it is on an exchange-rate basis; if you use the won price of Tether, it is on a Tether basis.

Let us take a hypothetical coin. Say a coin that costs $1 (1 USDT) abroad trades at ₩1,400 in a Korean KRW market.

• Exchange-rate basis: 1,400 ÷ 1,380 is about 1.0145, so the kimchi premium is about +1.45%.
• Tether basis: Tether is also ₩1,400, so 1,400 ÷ 1,400 = 1. The kimchi premium is 0%.

The same coin comes out at +1.45% and at 0%. The difference arises not because the coin is expensive but because Tether is.

Where the overseas price is shown in dollars (USD), it is natural to convert it with the exchange rate; where it is shown in USDT, with the won price of Tether. If you look only at the number without knowing which basis it uses, it is easy to misread it.

When the two bases point in opposite directions

When the Tether premium is large, even the direction can differ. Suppose the exchange rate is ₩1,380 and Tether is ₩1,420. Then 1,420 ÷ 1,380 is about 1.029, so the Tether premium is about +2.9%.

If a coin that costs $1 abroad trades at ₩1,400 in Korea, the kimchi premium on an exchange-rate basis is about +1.45%. But converted with Tether, 1,400 ÷ 1,420 is about 0.986, which makes it about −1.4%.

By the exchange rate Korea is more expensive, but by Tether it is a reverse premium (the Korean price is lower than abroad). If you look only at the exchange-rate premium and decide "Korea is expensive, so I will not buy", the coin may instead look cheap to someone who actually compares it with the overseas price through Tether.

How much this difference matters to you depends on how you buy and sell. For someone who buys in won and sells in won, the Tether premium does not enter the price directly. Still, it is good to know whether a high exchange-rate premium comes from the markup on Tether.

How to strip the Tether premium out of the kimchi premium figure

The figures collected on CoinGaja as of 10 a.m. KST on October 13 are a Bitcoin kimchi premium of +1.50% and a Tether premium of +1.47%. The numbers keep changing, and this kimchi premium is on an exchange-rate basis.

The kimchi premium on a Tether basis is found with (1 + kimchi premium) ÷ (1 + Tether premium) − 1. 1.0150 ÷ 1.0147 is about 1.0003, so it is about +0.03%.

Simply subtracting 1.47 from 1.50 also gives a similar 0.03%. But this is an approximation, so the larger the differences, the larger the error. Right now, Bitcoin's kimchi premium effectively comes mostly from the markup on Tether.

You can compare the current kimchi premium of many coins in the kimchi premium ranking. When you look, first check whether the number is on an exchange-rate basis or a Tether basis.