GOPAX risks falling out of Korea’s top 5 crypto exchanges

A promotional image of GOPAX / Courtesy of GOPAX

Financial instability threatens exchange

By Lee Yeon-woo

GOPAX, a South Korean cryptocurrency exchange, is on the verge of dropping out of Korea’s top 5 crypto exchanges, due to a significant increase in its debt, fueled by the recent surge in the value of major virtual assets that were deposited by investors in the past. If it fails to demonstrate its financial solvency, it may face expulsion, in the worst-case scenario, according to sources Sunday.

Recently, Jeonbuk Bank, which had established a real-name account agreement with GOPAX, demanded the exchange submit measures to enhance its financial solvency by the end of this month. GOPAX has now fallen into a state of complete capital impairment.

Under current regulations, cryptocurrency exchanges must secure real-name accounts from commercial banks to operate a trading platform. If GOPAX fails to renew this agreement, it will lose its eligibility to run the exchange.

GOPAX consistently reported net losses in 2022 and 2023. This downturn was due to the bankruptcy of Genesis Capital, which managed GOPAX’s deposit system, GOFi. It left GOPAX unable to return the principal to its investors.

The situation appeared to be improving when Binance, the largest global exchange, acquired a majority stake in GOPAX last year, marking its entry into Korea. Binance settled some outstanding payments, with plans to address its remaining debts after the completion of the change in majority ownership.

However, the financial authorities have postponed the approval of the change for a year, citing concerns over financial health and the ineligibility of the new majority shareholder. They have also called on GOPAX to submit a plan for improvements in its management structure by the end of this month.

Cho Young-joong, CEO of CityLabs and GOPAX, participates in the CEO meeting of the virtual assets industry, Feb. 7. Yonhap

Cho Young-joong, CEO of CityLabs and GOPAX, participates in the CEO meeting of the virtual assets industry, Feb. 7. Yonhap

In the meantime, GOPAX’s debt has snowballed. From approximately 56.6 billion won ($42.4 million) in December 2022, the debt nearly doubled to 110 billion won by the end of 2023. This increase has likely been aggravated by the recent sharp rise in the value of virtual assets.

On Feb. 16, GOPAX sent a proposal to GOFi creditors, proposing to convert their outstanding debts into shares.

“We cannot dismiss the chance that we will record a deficit for the third consecutive year in 2024,” the letter stated. “This financial strain may lead to the cancellation of an agreement with Jeonbuk Bank … significantly impacting the company’s ability to continue operations.”

Market observers believe that resolving the immediate crisis requires the approval of the creditors concerning this suggestion. However, the volatile prices of virtual assets might influence their decisions, adding a layer of uncertainty to the situation.

Attention is now focused on whether new investors will emerge to acquire GOPAX. Last month, Binance officially declared its intention to divest its stake in the exchange.

“The progress of this divestiture might lead to a change in the stance of financial authorities,” an official from the industry said.

A GOPAX spokesperson declined to offer additional comments on this issue.

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