South Korea is on the verge of a significant regulatory change for cryptocurrency exchanges: no-fault liability. This is a big deal considering the recent history of hacks and the need for user protection. But will this actually help users, or will it make exchanges less careful?
What is No-Fault Liability?
Starting soon, exchanges will have to compensate users for losses from hacks or system failures, regardless of whether they were at fault. This is in direct response to the November 2025 Upbit hack that resulted in the loss of around KRW 44.5 billion in Solana assets. Basically, it makes the crypto market a bit more like traditional banking in terms of user protection.
The Good and The Bad
On the surface, this seems like a win for user protection. But some are worried that if exchanges don't have to prove they weren't negligent, they won't feel the need to invest in security. If no one is there to hold them accountable, will they just sit back and relax, knowing the users will get compensated anyway?
To counteract this potential issue, the government is also imposing strict security requirements on exchanges. This includes mandatory cold storage for at least 80% of customer assets and strict AML regulations.
Smaller Exchanges vs. Bigger Exchanges
This new liability rule could shift the balance in the competitive landscape among exchanges. Smaller ones might struggle to keep up with the increased costs of security and compliance, while larger ones might have the capital to invest in better security. This could lead to even more consolidation in the market.
Compliance and the Future
For crypto-friendly businesses, the path forward means adapting to these new regulations. They’ll need to get the right licenses and beef up their security measures to comply with the rules. This could help them build credibility in a market that’s increasingly under the microscope.
Yes, this no-fault system has its risks, but it also comes with a robust regulatory framework that aims to keep exchanges in check. How effective this will be remains to be seen. But if South Korea can pull it off, it might just pave the way for a more secure future for cryptocurrencies.
