Kimchi Premium Arbitrage
Kimchi arbitrage · Kimp arbitrage
Buying a coin on an overseas exchange, sending it to a Korean exchange and selling it for won to pocket the kimchi premium, the gap between the two prices.
Simple explanation
Background: Korea's crypto exchanges (Upbit, Bithumb, Coinone and Digital X, formerly Korbit) trade in Korean won only. Won deposits need a Korean bank account in your own name linked to the exchange, and money cannot move freely in and out of Korea, so this trade is mostly done by people living in Korea.
Arbitrage means buying the same thing where it is cheap and selling it where it is dear. In kimchi premium arbitrage you buy a coin abroad, send it to a Korean exchange and sell it for won, hoping to keep the premium. When the premium is negative (a reverse premium), the trade runs the other way: buy in Korea, sell abroad.
The more people do this, the more coins are sold in Korea and bought abroad, which pushes the premium down. It still lasts because Korean exchanges deal only in won, won cannot leave Korea freely and moving coins in and out takes time and paperwork, so nobody can close the gap instantly or in unlimited size.
The premium on the screen is not your profit. Take off the trading fees on both sides, the withdrawal fee for sending the coin, slippage when your order eats through the order book, and the cost of getting dollars in the first place: bank exchange and wire fees, or the Tether premium if you buy USDT on a Korean exchange. The withdrawal fee is a fixed amount per coin whatever you send, so it weighs more on small trades.
One way to fund the overseas side is to buy Tether (USDT) on a Korean exchange and send it out. When the kimchi premium is high, Tether usually trades above the exchange rate too, so what you keep on this route is closer to the Tether-based premium than to the rate-based one.
A transfer takes anywhere from a few minutes to tens of minutes or more, for block confirmations and exchange processing. If the price or the premium moves meanwhile, the profit can shrink or turn into a loss. If an exchange suspends deposits or withdrawals of the coin for wallet maintenance or a network problem, your coin can get stuck on the way, and coins whose deposits are closed often show unusually large premiums precisely because nobody can arbitrage them. Some traders hedge with a short position on overseas futures, but that adds funding payments and liquidation risk.
Sending or receiving ₩1,000,000 (about $700) or more between a Korean exchange and another exchange falls under the Travel Rule, so sender and receiver details are checked. With an overseas exchange that is not on your Korean exchange's Travel Rule partner list, the transfer can be blocked or need a separate identity check, and a deposit from an unsupported exchange is not credited and can take a long time to come back. Korea is also working on extending the rule to transfers under ₩1,000,000, so check the exchange's notices before you send.
Sending won abroad to buy coins runs into Korea's Foreign Exchange Transactions Act: transfer limits, the stated purpose of the money and reporting duties. People who wired money abroad with papers dressed up as import payments to chase the premium have been caught and prosecuted for breaking it, among other charges. This is not legal advice; check with your bank or a professional before any trade that involves sending money overseas.
CoinGaja's Kimchi Premium Calculator takes trading fees, withdrawal fees and order-book slippage out of the premium at the moment you calculate and shows what you would actually keep. It does not include price moves during the transfer, the cost of getting dollars or deposit delays, so a high premium never guarantees a profit.
Example
Bitcoin on Binance $70,000 × KRW/USD rate ₩1,400 = ₩98,000,000 in won
Bitcoin on Upbit ₩102,900,000 → kimchi premium +5.00%
Buy 7,000 USDT on a Korean exchange at ₩1,414 each (Tether premium +1.00%) and send it abroad → cost ₩9,898,000 (about $7,070 at ₩1,400)
Buy 0.1 BTC with the 7,000 USDT overseas and send it to the Korean exchange → selling it there brings ₩10,290,000
Price gap = 10,290,000 − 9,898,000 = ₩392,000 (Tether-based premium +3.96%)
If three trading fees, two withdrawal fees and slippage add up to ₩50,000 → you keep +₩342,000 (about +3.46%, roughly $244)
If the Korean price falls 4% to ₩98,784,000 while the coin is on its way → 0.1 BTC brings ₩9,878,400 → 9,878,400 − 9,898,000 − 50,000 = -₩69,600 (a loss)
Both transfers are ₩1,000,000 or more, so both go through Travel Rule checks
※ Example numbers, for illustration only
See it on CoinGaja
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