Upbit to Raise Cold Wallet Ratio to 99% Amid Liquidity Concerns

South Korea’s largest cryptocurrency exchange, Upbit, announced plans to increase its cold wallet storage ratio to 99%, following a major security breach last month.

The announcement comes as part of a comprehensive security overhaul following hackers’ theft of approximately 44.5 billion won ($31 million) in Solana-based assets on November 27.

Upbit Strengthens Security After Second November 27 Breach

According to operator Dunamu, Upbit currently maintains 98.33% of customer digital assets in cold storage as of late October, with only 1.67% held in hot wallets. The exchange stated it has completed a full wallet infrastructure overhaul and aims to reduce hot wallet holdings to below 1% in the coming months. Dunamu emphasized that customer asset protection remains Upbit’s top priority, with all breach-related losses covered by the company’s reserves.

The breach marked Upbit’s second major hack on the same date six years ago. In 2019, North Korean hacking groups Lazarus and Andariel stole 342,000 ETH from the exchange’s hot wallet. This time, attackers drained 24 different Solana network tokens in just 54 minutes during the early morning hours.

Under South Korea’s Virtual Asset User Protection Act, exchanges must store at least 80% of customer assets in cold wallets. Upbit significantly exceeds this threshold and maintains the lowest hot wallet ratio among domestic exchanges. Data released by lawmaker Huh Young showed that other Korean exchanges were operating with cold wallet ratios of 82% to 90% as of June.

Upbit Outpaces Global Industry Standards

Upbit’s security metrics compare favorably with those of major global exchanges. Coinbase stores approximately 98% of customer funds in cold storage, while Kraken maintains 95-97% of its funds offline. OKX, Gate.io, and MEXC each keep around 95% of their funds in cold wallets. Binance and Bybit have not disclosed specific ratios but emphasize that the majority of funds remain offline.

Global exchanges have increasingly focused on Proof of Reserves audits to demonstrate solvency, while Korean regulators require direct disclosure of cold-to-hot wallet ratios. Upbit’s target of sub-1% hot wallet holdings would set a new global industry benchmark.

Liquidity Concerns in an Isolated Market

However, some analysts raise concerns about potential trade-offs between security and liquidity. South Korea’s cryptocurrency market operates under strict regulations that require real-name bank accounts and limit foreign participation. This closed structure contributes to the persistent “Kimchi premium,” in which local prices often diverge from global markets due to limited arbitrage opportunities.

With minimal hot wallet reserves, withdrawals during periods of high volatility may be delayed. When investors seek to move assets offshore to capitalize on price differentials, slower withdrawal speeds might exacerbate market inefficiencies.

For instance, when Upbit suspended withdrawals following the hack last month, arbitrage channels linking Korean and global markets were effectively shut down. With no mechanism to correct price discrepancies, several altcoins surged by double or even triple digits within hours as trapped liquidity amplified volatility.

Upbit maintains that its optimized systems and predictive modeling ensure sufficient liquidity for normal operations. The exchange argues that protecting customer assets from security breaches outweighs the marginal inconvenience of occasional processing delays during extreme market conditions.