Suspended crypto deposit services raise doubts about staking in Korea

[Photo by Lee Seung-hwan]

South Korean cryptocurrency depository services, such as Haru Invest and Delio, have been suspending withdrawals one after another, raising concerns that investors may lose confidence in similar coin staking services.

According to sources on Tuesday, Haru Invest gained attention for offering high interest rates of up to 12 percent APR for deposits of Bitcoin, but it was mired in a rug-pulling controversy when it suspended deposit and withdrawal services on June 13. The following day, another cryptocurrency depository service Delio suspended customer withdrawals. Delio said it is suspending withdrawals due to a sharp increase in market volatility in the wake of Haru Invest, causing confusion among investors.

More than 100 investors in Haru Invest and Delio have sued the two firms for fraud through LKB & Partners. The law firm claimed that the amount of damage to investors who participated in the lawsuit reached 50 billion won ($38.4 million).

With the problems with crypto deposit services, some investors are concerned that staking services provided by crypto exchanges are also risky.

Cryptocurrency deposit services are similar to staking in that customers deposit their crypto assets with exchanges and receive interest payments, but deposit and staking are different in concept and service structure.

Staking is a service that entrusts digital assets to be utilized for blockchain verification and receives digital assets as a reward rather than interest.

By staking crypto assets on a blockchain, investors participate in the verification of transactions on that blockchain, and the blockchain pays crypto assets to staking participants as a reward for verifying transactions.

Unlike deposits, where exchanges directly sell products, exchanges act as a kind of intermediary to facilitate the participation of individual investors in staking. Anyone can participate in blockchain staking, but there are entry barriers such as minimum assets, technical difficulty, and security issues.

For example, to participate in Ethereum (ETH) 2.0 staking, you must have a minimum of 32 ETHs.

Upbit, the largest crypto exchange in South Korea, supports staking of three cryptos: Ethereum, Cosmos, and ADA.

The estimated annualized reward rates are 4.3 percent for ETH, 22.5 percent for Cosmos, and 3.4 percent for ADA.

When a customer signs up for the staking service through an exchange, the customer’s deposit is not entrusted to a third party, but remains on the exchange, which is different from the coin deposit service.

“The crypto assets entrusted from investors are 100 percent staked on the blockchain network through the validator operated by Upbit, and we do not manage the entrusted crypto assets or entrust them to an external company,” said an official from Upbit. “The customer deposits are stored in a cold wallet separated from the Internet, so there is no possibility that customers will not get their assets back.”