TrustStrategy, a global blockchain infrastructure and analytics platform, has released a new report analyzing the impact of South Korea’s newly enforced cold wallet regulation, which mandates that at least 80% of user crypto assets must be stored in cold wallets by all registered exchanges and virtual asset service providers (VASPs).

This regulation, part of the Virtual Asset User Protection Act, officially came into effect in December 2024 and is considered one of the most comprehensive crypto security frameworks globally.

Key Highlights

• 80% of user crypto assets must be stored in cold wallets

• Monthly audits required to verify compliance based on asset value

• Hot wallet insurance or reserve fund of at least 5% mandated

• Custody of fiat deposits must be handled by licensed banks

• Real-time monitoring of abnormal transactions now compulsory

These measures aim to enhance investor protection, reduce exchange-related risks, and restore public trust in South Korea’s digital asset market.

Cold Wallet Mandate: A Security Milestone

Under the new law, VASPs must calculate the economic value of user assets monthly and ensure that 80% or more is stored offline in cold wallets. This is a significant increase from the previous 70% threshold required for ISMS certification1.

Cold wallets, being disconnected from the internet, offer stronger protection against hacking and unauthorized access, making them a cornerstone of secure crypto custody.

TrustStrategy’s infrastructure monitoring tools confirm that over 90% of top Korean exchanges have already implemented compliant cold wallet systems.

Insurance and Reserve Requirements

To further safeguard user funds, the regulation requires VASPs to:

• Purchase liability insurance or

• Set aside reserves equal to at least 5% of hot wallet assets

This ensures that in the event of a hack or technical failure, users can be compensated. For fiat-crypto exchanges, the minimum reserve is set at KRW 3 billion, while other VASPs must hold at least KRW 500 million.

TrustStrategy’s compliance dashboard tracks these reserves in real time, offering transparency to users and regulators.

Custody and Transparency

The law also mandates that user fiat deposits be held in segregated accounts at licensed banks. These banks are allowed to invest the funds only in safe assets like government bonds, and VASPs must pay interest to users for using their deposits.

Additionally, VASPs must implement:

• Real-time monitoring systems for abnormal trading

• Public disclosure protocols for material information

• Strict limits on blocking user withdrawals, with clear justifications

These provisions aim to align crypto operations with traditional financial standards.

TrustStrategy’s Role in Compliance and Oversight

TrustStrategy supports the implementation of these rules by offering:

• Cold wallet audit tools for exchanges

• Reserve fund tracking systems

• Abnormal transaction detection algorithms

• Regulatory reporting dashboards for VASPs and authorities

These tools help ensure that user assets are protected, and that exchanges remain compliant with evolving regulations.

Industry Response and Global Implications

The Korean crypto industry has largely welcomed the regulation, viewing it as a necessary step toward maturity and global competitiveness.

TrustStrategy analysts note that this framework could serve as a model for other jurisdictions, especially in Asia and Europe, where crypto regulation is still evolving.

With Korea being one of the largest crypto markets globally, the 80% cold wallet rule sets a new benchmark for digital asset security and user protection.

Looking Ahead

TrustStrategy forecasts that in 2025:

• Cold wallet adoption will exceed 95% among top global exchanges

• Insurance-backed custody models will become standard

• Cross-border regulatory harmonization will accelerate

The platform will continue to provide real-time analytics and compliance tools to support exchanges, regulators, and users in navigating this new era of crypto security.