Part 2. The 'One Exchange–One Bank' Practice and Structural Limits of the KRW Market
KBR Research
This report analyzes the de facto 'one exchange–one bank' structure in Korea's virtual asset KRW market, the entry barriers and structural issues it creates—including the kimchi premium and disconnection from global liquidity—through case studies.
Part 2: The 'One Exchange–One Bank' Practice and Structural Limits of the KRW Market
To understand Korea's virtual asset market, one must first grasp a key structural feature: the de facto practice of "one exchange–one bank."
In Korea, operating a KRW market requires an exchange to link real-name verified deposit/withdrawal accounts with a bank. Users need a bank account in their own name to deposit or withdraw KRW to or from an exchange. This system was introduced for anti–money laundering (AML) and user protection; banks perform AML duties by monitoring transactions and reporting suspicious activity through accounts linked to exchanges.
The problem is that over time this system has effectively functioned as a "gatekeeper" to the market. To open a KRW market, an exchange must secure a bank partnership before it can focus on technology or service competitiveness. Without a bank issuing real-name accounts, the exchange cannot operate a KRW market and is left with only a crypto-to-crypto market or forced to abandon the business altogether.
A telling example of this structure's impact is Houbi Korea. Houbi entered the Korean market with a global exchange brand but could not secure real-name verified deposit/withdrawal accounts. It was unable to maintain a KRW market; KRW trading was suspended and the business was effectively wound down and exited the market.
There have also been cases where market entry itself was blocked by the real-name account requirement. INEX prepared to launch a virtual asset trading platform in Korea but could not open a KRW market due to failure to secure bank real-name accounts. This shows that regardless of service readiness, market entry is impossible without a bank partnership.
These two cases illustrate that the "one exchange–one bank" practice is not merely an administrative procedure but a factor that shapes the market structure itself—one case demonstrating exit from the market, the other the impossibility of entry.
This structure has made Korea's virtual asset market increasingly closed. Korea is sometimes described as a "financial Galápagos." As global retail banks have withdrawn from the Korean market, the financial system has remained domestically oriented. The virtual asset market shows similar characteristics.
The KRW market holds substantial liquidity but effectively operates as a Korea-user-centric market. It is structurally difficult for overseas investors to participate directly in the Korean KRW market.
By contrast, overseas virtual asset exchanges offer a much wider range of funding channels.
First, users can deposit virtual assets directly from a personal Web3 wallet to an exchange. This is a basic function over blockchain networks and allows asset movement without a bank account.
Many global exchanges also support fiat deposits via overseas bank accounts. Users can fund their exchange accounts through international transfers or overseas accounts and trade in dollars, euros, and other currencies.
Some exchanges additionally allow funding via credit card or mobile payment. For example, mobile payments such as Apple Pay or card payments can be used to buy virtual assets or top up exchange accounts. In other words, overseas exchanges have multiple funding paths:
① Personal wallet → exchange
② Overseas bank account → exchange
③ Card / mobile payment → exchange
This structure allows global liquidity to flow naturally into exchanges.
This does not mean overseas exchanges operate without KYC or AML procedures. Major global exchanges typically apply strict customer due diligence for AML purposes.
Generally, when a user opens an exchange account, KYC is conducted through passport or ID and face recognition. Some exchanges require address verification or additional identity checks.
Exchanges also use blockchain analysis tools to trace the origin of incoming virtual assets. Technologies such as Chainalysis and travel-rule solutions are used to analyze links to illicit addresses, mixing services, or sanctioned addresses.
When suspicious activity is detected, exchanges may freeze accounts or require additional verification. Additional AML checks may be applied depending on transaction size or user activity patterns.
In short, overseas exchanges do not rely on a single bank-account structure; they run AML frameworks through ① identity verification (KYC), ② blockchain analysis–based fund tracing, and ③ transaction monitoring systems.
Korea's KRW market, by contrast, largely depends on a single path: "domestic bank account → exchange." In this structure, direct participation by overseas investors is limited and linkage to global liquidity is inevitably constrained.
This closed structure has produced another distinctive phenomenon: the "kimchi premium."
The kimchi premium refers to the same virtual asset trading at a higher price on Korean exchanges than on overseas exchanges. In global markets, price gaps typically trigger arbitrage and quick convergence. In Korea, however, such gaps often persist for some time.
This phenomenon results from several factors: difficulty moving funds between overseas exchanges and the KRW market, limited direct participation by overseas investors, and concentration of KRW liquidity in certain exchanges. When overseas capital cannot flow in freely and arbitrage is restricted, the size and frequency of price gaps tend to increase.
Figure 1: Tiger Research, "2 Hour Kimchi Premium Shift After $AVAIL Listing" (Jul 23, 2024), Bithumb·Gate.io trading data analysis.
The Avail (AVAIL) incident in August 2024 was an extreme example of this structure.
Avail was listed on global exchanges and then on domestic exchanges. Shortly after domestic listing, its price on the Korean market rose sharply relative to global markets. In some periods, a premium of over 1,000% versus overseas exchange prices was observed.[1] This premium did not last long. Shortly after the spike, heavy selling drove the price down by more than 80%, causing large short-term volatility.
The incident left several important questions.
First, a very large price gap emerged between domestic and overseas exchanges. Second, the high premium formed right after listing may have given some participants a large selling opportunity. Third, it showed that Korea's premium structure could be exploited by specific projects or participants.
For these reasons, the Avail incident has been viewed as an extreme case of kimchi premium exploitation.
It is worth asking one step further, however.
Was this phenomenon simply a problem of a specific project or a specific exchange, or did the structural characteristics of the Korean market create an environment where such phenomena are more likely?
The more closed the KRW market and the more limited its link to global liquidity, the easier it is for price gaps to arise. In a market with limited participants, liquidity can concentrate at certain moments and amplify price volatility.
From this perspective, the question is whether to treat the kimchi premium purely as a market phenomenon or as an outcome of market structure.
Recent discussion of a KRW-backed stablecoin is not unrelated to this context. A KRW-based stablecoin is expected to ease the exchange–bank account structure and make KRW liquidity movement more flexible.
Important questions remain, however.
Is creating another "KRW-form asset" for Korean users who already use KRW really a way to solve the market structure problem, or should the closed nature of the KRW market itself be addressed first?
If a KRW stablecoin is simply another payment instrument for domestic users, the market structure is unlikely to change much.
If it is to be used as a tool to attract global liquidity, the overly closed structure of the KRW market must be reconsidered first.
In the end, the core point is one.
The current "one exchange–one bank" practice may be one way to achieve the policy goal of preventing money laundering. At the same time, it weakens market competition and makes the KRW market more closed.
It is difficult to expect both greater market competition and expanded global liquidity while keeping this structure unchanged.
The next part will examine another feature of Korea's virtual asset market: the "exchange-as-everything" model. We will analyze how the combination of listing, trading, custody, and surveillance functions within a single organization creates conflicts of interest and how this affects market competition and investor protection.
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