Methods for attracting Korean users vary by DeFi protocol, and attracting Korean users may be more challenging for some protocols than for others.
Written by:IGNAS
Compiled by: Shenchao TechFlow
In South Korea, almost no one doesn’t know about Bitcoin.
In 2017, the country of more than 50 million people handled 20% of all Bitcoin transactions and became the largest market for Ethereum.
Korean students check the price of Bitcoin during recess, office workers trade while waiting in line for coffee, and senior citizens participate in market transactions at home.
The craze reached its peak when local Bitcoin prices were 40% higher than on U.S. exchanges. Coinmarketcap even removed South Korean prices from the cryptocurrency market. This phenomenon is called the “kimchi premium.”
That pickle premium disappeared in 2018 when the government cracked down on speculation. First, the government mandated the use of real-name bank accounts for cryptocurrency transactions, and then banned ICOs outright in the same year. The kimchi premium may be long gone, but the craze lives on.
In 2022, South Korea ranked third in terms of Bitcoin trading volume, accounting for 8.7% of the market. The United States leads the list with a 69.8% share, followed by Japan with an 11.3% share.
One explanation for the craze is South Korea's rapid adoption of new technologies, but there's more to it: culture and narrative.
Understanding Korean Culture: Miracle on the Han River
The Korean War from 1950 to 1953 made South Korea one of the poorest countries in the world. By 2023, it became one of the richest countries.
Rapid economic growth is attributed to family business groups known as chaebols, an emphasis on exports, the hard work of the workforce and the Korean mentality. This mentality of moving quickly and completing tasks efficiently.
The "빨리 빨리" (fast) mentality permeates the Korean lifestyle. Every second counts. Food had to be delivered quickly, trains arrive on time, and buildings be constructed within weeks. Whatever you do, do it quickly and efficiently. Get rich quick is no exception.
However, getting richer becomes more difficult. Since 2012, economic growth has slowed to about 3% from the double-digit gains of the 2000s. Therefore, ways to get rich include investing in stocks or real estate, but the market is not suitable for everyone.
Due to the lack of high-risk investments, real estate and domestic stocks become less attractive when real estate becomes expensive and interest rates rise. Derivatives trading has strict certification requirements, and KOSDAQ, the overall tech index, has seen little growth since 2011.
The alternative has long been gambling.
Ways to get rich quick - gambling.
The thing is, gambling is even illegal in South Korea.
Games including lotteries, horse racing, boat and bicycle racing, and casino gambling are all illegal - even for Koreans traveling abroad.
The prevalence of gambling addiction in South Korea is two to three times higher than in other major countries, according to the Korea Center on Problem Gambling, established by the South Korean government in 2012. While it's unclear how these statistics are calculated, a widespread social theory that Koreans are particularly susceptible to gambling addiction has influenced the development of related laws.
With other investments restricted, cryptocurrencies are seen as a way to get rich quick.
Koreans view cryptocurrency exchanges as gambling, trying to make large amounts of money in a short period of time.
In the West, the story of cryptocurrencies “no longer limited to banks” or the story of Bitcoin as digital gold dominates. But in South Korea, where trust in finance and banking is high, these stories have less impact.
At the end of the day, the story of Bitcoin as digital gold is not compelling enough because gold cannot surge in price by 100% in one day.
However, altcoins can.
To keep traders engaged and provide an adrenaline rush, some local exchanges have become experts in meeting the demand.
For example, a listing on a major exchange always attracts the attention of retail investors, but only in South Korea, delisting from the exchange is also an opportunity.
The delisting window requires deposits to be stopped, so as the inflow of new tokens is restricted, speculators will push the price higher to get the last profit before they can no longer be traded. Naturally, delisting notices generate as much or more attention among speculators as listings.
An even more exciting feast is exchange maintenance. When deposits and withdrawals are closed, but trading is not disabled, the situation is known as "가두리" (a closed net used to load live fish). Similar to a fish that cannot escape a net, closed markets are not dependent on external prices and cannot be arbitraged, making trading in this environment a real feast for gamblers.
To be fair, this type of internal market trading is also popular for stock trading in South Korea, and cryptocurrencies offer new opportunities to use this technique.
Some exchanges have not even opened cryptocurrency deposits and withdrawals from the beginning, focusing on internal market trading.
But with that comes cryptocurrency regulation…
Since 2021, exchanges have been required to register with financial regulators.
All exchanges are required to have an ISMS security license and a real-name bank account (only 5 exchanges have both). Cryptocurrency exchange leaders who fail to register could face up to five years in prison or a fine of up to 50 million won.
Cryptocurrency regulation imposes restrictions on cryptocurrency trading, requiring every investor to use a real-name bank account. This means Koreans must open a real-name account at a bank supported by the exchange.
Koreans are even required to report deposits/withdrawals to their own wallet or other centralized exchanges by registering a withdrawal address with their local CEX.
The end result of this regulation was the closure of hundreds of cryptocurrency exchanges.
Currently, only 5 exchanges have real-name bank accounts. One of the exchanges, Gopax, was supposed to be acquired by Binance, but a report published by a Korean daily stated that the Financial Services Commission (FSC) was reviewing Binance’s acquisition due to the recent lawsuit filed against Binance by the U.S. Securities and Exchange Commission (SEC) .
Why DeFi is not popular in South Korea
Considering all these changes and the ongoing cryptocurrency bear market, the narrative of cryptocurrency as an alternative to gambling should prompt Koreans to turn to DeFi.
But DeFi is not as popular in South Korea as it is in the West, despite the efforts of major Korean blockchain companies.
For example, Klaytn is South Korea’s largest layer-1 blockchain and has its own DeFi, NFT, and GameFi ecosystem. Klaytn is powered by South Korea's Facebook-like Kakao and has 53 million active users. There is even a Klaytn wallet in the Kakao Messaging App.
As of this writing, there are 34 DeFi applications on Klaytn (DefiLlama data) with a total value locked (TVL) of $123 million. That’s not a bad number, but South Korea actually has lower DeFi adoption.
Based on my personal conversations with Koreans investing in cryptocurrencies, I noticed that only a few have shown interest in DeFi. Even my colleagues who work at a cryptocurrency exchange don’t have much love for DeFi and only a few are familiar with setting up a Metamask wallet.
Their motivations for avoiding DeFi vary, but I now believe the main reasons are as follows:
In a society with a higher level of trust in the financial system, the benefits of self-custody are not enough to attract people, and major centralized exchanges like Upbit and Bithumb already provide enough trust.
Compared with centralized exchanges, DeFi is more difficult to use: wallets, private keys, withdrawals and deposits are all "annoying", and the user interface and user experience of the DeFi application itself have not been adapted for the Korean market.
In pursuit of the goal of getting rich quick (gambling), centralized exchanges provide enough entertainment without the need to gamble on decentralized exchanges.
Lack of Korean content. DeFi terminology is complex and aimed at English speakers.
Single or even double-digit annualized returns are not attractive to speculators who prefer leveraged trading on exchanges (derivatives trading is banned in South Korea).
Since I’m not Korean myself, I turned to my friends Doo, the COO of StableLab and a Growth AVC member at MakerDAO, and Garlam, the Managing Partner of Momentum 6.
Question 1: Why do you think DeFi is not that popular in Korea despite the popularity of cryptocurrencies there?
Doo：
While Korean users have shown interest in aspects such as lending and yielding in DeFi, use of self-custody options like Ledger and MetaMask is not widespread.
Additionally, most DeFi apps and websites are written in English, which is a significant barrier for Korean users.
This is evidenced by the recent closure of withdrawals by Haru Invest and Delio, which has prompted many users to choose to use South Korea’s friendly centralized finance (CeFi) platform to experience “DeFi-like” loans and returns.
Accelerate：
I think there are three key factors:
Structure: The traditional banking system has strict structures and clear guidelines, which makes the growing DeFi difficult to adopt for some. For example, some people still have difficulty using Google Chrome for banking because some anti-hacking, key tracking, and authentication software are only supported on Internet Explorer. This rigid structure has caused many people to turn to familiar platforms such as centralized exchanges.
Busy: Koreans’ busy work and social schedules limit their ability to keep up with the rapid development of DeFi. Many people are either too busy or too complacent to devote the time to understanding an area that requires constant learning, especially if the information is provided in a foreign language and only remains relevant for a short period of time.
Timing: Participation in DeFi often starts with high-risk, high-reward projects and then moves on to safer blue-chip DeFi. Due to the time zone difference between South Korea and the United States where most project releases and updates occur, many Koreans often miss out. This combined with the need to constantly monitor English-language news (not commonly used in South Korea) makes for a poor first experience with DeFi and hinders their ability to keep up with developments.
Question 2: What changes are needed for DeFi to gain adoption in South Korea?
Doo：
There are two main (although not mutually exclusive) ways to achieve this. One is to be more "Korea-friendly" by providing Korean-language materials and websites.
Another is to partner with a popular centralized entity. For example, Coinone is one of the few major Korean exchanges that has integrated DeFi yield positions, allowing its users to benefit from these DeFi yields.
This is a step towards onboarding users directly into DeFi in a non-custodial manner.
Accelerate：
very simple. Koreans need to make money from DeFi in Korea. Once they get a taste of it, the craze begins.
Question 3: What do DeFi protocols and communities need to do to attract Korean users to participate in DeFi?
Doo：
Methods for attracting Korean users vary by DeFi protocol. Attracting Korean users may be more challenging for some protocols than others.
The complexity of a project's product often determines the difficulty of attracting users.
For example, options and insurance are complex products that are difficult for most Korean users to understand. Therefore, such protocols may be more successful in attracting Korean users to trade their tokens rather than use their products.
For simpler DeFi products, marketing and most importantly access need to be considered. Marketing can be done both passively and proactively.
Passive methods include translating websites into Korean and providing Korean guides so users can easily find and use them. Active approaches may include participating in interviews and speaking at events in South Korea.
It may also be beneficial to maintain a Korean Telegram or Kakaotalk group. In terms of access, the protocol needs to partner with a Korean centralized financial platform that can offer DeFi products or a Korean-friendly crypto mobile wallet company.
Mobile wallets are the preferred method of accessing cryptocurrencies in South Korea compared to other regions.
Accelerate：
Localization - South Korea is a highly culturally homogeneous market. Without a real Korean team operating within Korea, it would be difficult for the team to enter the Korean market.
KOLs and media – they are the preferred medium for people to exchange information. Identify good and bad participants in Telegram and Kakao groups and educate the admins of these groups (even provide them with promotion budgets). This will likely result in the highest ROI for expansion.
Preconceptions – As mentioned before, in times of uncertainty, people tend to revert to their default modes. The tokens traded on Korean exchanges allow them to become familiar with their names and historical prices. Once people are able to gain some kind of benefit from the token, they are more likely to participate in the entire ecosystem.
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This article is reprinted from TechFlow Shenchao with permission
This article Korean Crypto Culture: Why Koreans Like Cryptocurrencies, but Not DeFi? first appeared on Zombit.