Virtual Asset User Protection Act

Simple explanation

Background: Korean law calls crypto "virtual assets" (가상자산). This act is Korea's first law built around protecting crypto users; before it, exchanges were governed mainly by an anti-money-laundering law.

Its full name is the Act on the Protection of Virtual Asset Users, etc. (Act No. 19563). It was enacted on 18 July 2023 and took effect a year later, on 19 July 2024. Until then the main rule for exchanges was the Act on Reporting and Using Specified Financial Transaction Information, which targets money laundering and gave little footing to protect users' money or punish manipulation. The act rests on three legs: protecting users' assets, banning unfair trading, and supervision and sanctions by the financial authorities. It is called the phase-one law because a broader law covering the whole market was meant to follow.

User deposits: the won you keep on an exchange such as Upbit, Bithumb, Coinone or Digital X (formerly Korbit) must be kept apart from the exchange's own money with a custodian, in practice a bank. Nobody can offset or seize it, and if the exchange's registration is cancelled, it resolves to dissolve or merge, or it is declared bankrupt, the bank pays users back first when they claim. The bank may invest the money only in safe assets such as government and municipal bonds, and the exchange pays users a deposit fee that works like interest. Rates differ by exchange and change; DAXA's website compares its members' rates.

Coins: exchanges must keep their own coins apart from users' coins and actually hold the same kind and amount of coins that users have deposited. At least 80% of users' coins, by economic value, must sit in cold wallets cut off from the internet (the decree sets a floor of 70% and lets the Financial Services Commission fix the ratio, which its supervisory rules put at 80%). For what stays in internet-connected hot wallets, exchanges must buy insurance, join a mutual-aid scheme or set aside reserves against hacks and system failures: at least 5% of the hot-wallet coins' value, and no less than ₩3 billion (about $2.1 million) for won-market exchanges or ₩500 million (about $360,000) for other operators.

Unfair trading: the act bans three kinds. First, using material non-public information, such as a listing decision before it is announced, to trade or to tip others off. Second, market manipulation: matched or wash trades that fake an active market, and orders that deliberately move a price or pin it in place. Third, fraudulent trading: drawing people into trades with deceptive schemes, false statements or false prices. Exchanges are also, in principle, barred from trading coins issued by themselves or related parties.

Penalties for those three kinds of unfair trading are heavy: at least one year in prison, or a fine of three to five times the illicit gain (profit made or loss avoided). For gains of ₩500 million (about $360,000) up to ₩5 billion (about $3.6 million) the prison term rises to at least three years, and for ₩5 billion or more to at least five years or life; proceeds are confiscated. Besides criminal penalties, the Financial Services Commission (FSC) can impose a penalty surcharge of up to twice the gain (up to ₩4 billion, about $2.9 million, when the gain is hard to work out), and violators owe damages to the users they harmed.

Exchanges have duties too. They must watch constantly for abnormal trading, such as unusual price or volume moves or trading around rumors and reports, and tell the FSC and the Financial Supervisory Service (FSS) when they suspect unfair trading. They may not block users' coin deposits or withdrawals without a legitimate reason. Legitimate reasons include system failures and maintenance, the threat of a hack or similar incident, a request from the authorities, compliance with other laws, and holding withdrawals for up to 72 hours after a deposit to prevent voice-phishing losses; even then, the exchange must tell users the reason in advance and report to the FSC at once. That is why exchanges post wallet-maintenance notices. The FSS inspects exchanges, and the FSC can order corrections, suspend business or impose administrative fines.

In July 2026, two years in, the FSC said it had finished about 40 unfair-trading investigations and referred about 30 of them to prosecutors or police, involving 25 suspects and an average illicit gain of about ₩1.4 billion (about $1 million) per case. Most were manipulation, including ultra-short-term schemes nicknamed "racehorse" (piling orders into a set time to lure buyers) and gadoori, or "fish pen" (pushing up a coin whose deposits and withdrawals are blocked), and some cases drew surcharges of about 125-165% of the gain. The phase-two law, the Digital Asset Basic Act, is still being argued over, with issues such as won stablecoin issuance and caps on exchange owners' stakes, and as of October 2026 it has not passed the National Assembly. Regulators want it to add no-fault liability for exchanges in hacks and system failures, freezes on accounts used for unfair trading and rewards for whistleblowers, but none of this is settled.

The act does not protect coin prices or your principal. Operators not registered with Korea's Financial Intelligence Unit (FIU), overseas exchanges and person-to-person trades outside an exchange are hard to cover, so check that a platform is registered before you use it. On the kimchi premium side, manipulation that exploited coins with blocked transfers and huge premiums has been caught, and the alerts exchanges put on coins trading far from global prices are part of the abnormal-trading watch. CoinGaja gathers deposit and withdrawal suspensions, exchange notices, caution alerts and investment warnings in one place. This is not legal advice; for a specific case, check with the authorities or a professional first.

Example

※ Example numbers, for illustration only

See it on CoinGaja

• 🚦 Deposit and withdrawal suspensions by exchange›
• 📢 Exchange notices›
• 🗓️ Listings and delistings›

Related terms