Original Title: What If: Upbit and Bithumb Launch Their Own Blockchains?

Original Author: Tiger Research

Original Translation: Ismay, BlockBeats

Editor's Note: This research report was originally published on August 20, mainly discussing the various paths that Upbit and Bithumb could take if they were to build their own blockchains, which at that time remained at the level of assumption and speculation. Just last night, South Korea's largest exchange platform, Upbit, announced the official launch of its own L2, Giwa, turning this speculation into reality.

This development not only validates the accelerating trend of "CEX-owned chains" but also signifies that Korean platforms are transitioning from a business model centered around trading fees to a more imaginative infrastructure competition. Building on previous analysis, market participants will further observe: how Upbit, leveraging its massive user base and liquidity advantage, will establish Giwa as a new ecosystem gateway, and how this move will impact Bithumb, and even the overall landscape of the South Korean crypto market.

The following is the full content, with some modifications for readability:

Centralized exchanges globally are gradually launching their own blockchains to explore new revenue streams. Upbit and Bithumb may also join this competition.

Four potential paths include: a Layer 2 network based on the OP Stack, a Korean won stablecoin infrastructure, leveraging Korea's unique market liquidity, and tokenization of unlisted company equity. Each scenario reflects the particularities of the Korean market.

However, regulatory constraints and technical complexity remain major obstacles, posing significant short-term implementation challenges. But as trading volumes decline and global competition intensifies, the two major platforms urgently need to find new growth drivers.

CEX-Led Infrastructure Competition Begins

Platforms are actively engaging in the competition for blockchain infrastructure. Coinbase (@coinbase) has launched Base (@base), Kraken (@krakenfx) has introduced Ink (@inkonchain), and Robinhood (@RobinhoodApp) has also recently entered the fray, making the competition increasingly intense.

The root cause of this intense competition lies in the limitations of the fee-based business model. Fees are the most stable source of income in the crypto industry, but their heavy reliance on market conditions makes them lacking in resilience, forcing CEXs to seek revenue diversification. In the past, platforms mainly competed within limited regulatory jurisdictions, but now the competition has expanded globally. At the same time, decentralized platforms also pose a challenge to centralized platforms, with their market share peaking at over 25% at one point.

Meanwhile, the mainstream application of cryptocurrency is accelerating, opening up new business opportunities for CEXs beyond the trading business, with blockchain infrastructure being key to this trend, further accelerating the competition among major platforms to build their own chains.

What if Upbit and Bithumb Launch Their Own Blockchain?

Global centralized exchanges are ushering in a wave of proprietary chain development. This naturally raises a question: "Will South Korea's two major platforms, Upbit and Bithumb, also join in?" To assess this possibility, we need to review their current situation and past explorations.

South Korea holds a unique position in the global crypto market. In terms of fiat currency trading volume, the South Korean won (KRW) has long ranked second globally, only behind the US dollar (USD), and sometimes even surpassing the USD. No other single country globally can contribute such a huge trading volume. It is this market environment that has allowed Upbit and Bithumb to grow into large enterprises in Korea (defined in Korea as companies with assets exceeding 50 trillion KRW).

However, this landscape is changing. Since reaching a historical high in trading volume in 2021, the trading volume of the two major CEXs has been continuously declining. Local users are gradually moving to global platforms like Binance, Bybit, or turning to decentralized platforms. This means that Korean domestic CEXs are gradually entering an environment where they cannot rely solely on the "Korean market liquidity premium."

Both platforms have long been aware of this trend. Upbit and Bithumb have both attempted to drive global expansion through overseas subsidiaries and business diversification, but it has proven difficult to establish a competitive advantage overseas solely based on the "Korean CEX" label.

They have also launched various platform-type businesses, many of which have ended in failure, as these explorations lacked deep integration with their core strengths. Furthermore, regulatory sanctions have also constrained their diversification attempts.

Today, the external environment is changing. Trump's pro-crypto policy has improved the global regulatory atmosphere, allowing CEXs to more actively pursue new growth strategies. In this context, launching a proprietary blockchain has become a realistic option for Upbit and Bithumb to consider.

If they do indeed launch a public chain, the outcome could be drastically different. The two major platforms can directly leverage their "asymmetric advantage": a large user base with ample liquidity, and Korea's unique market characteristics provide further potential for differentiated value creation.

Expected Scenario 1: Layer 2 Network Based on OP Stack

If Upbit and Bithumb were to build their proprietary chains, they would be more likely to choose Layer 2 over Layer 1.

The main reason is the development complexity and required resources. The development and operation of Layer 1 require massive investment, and although Layer 2 has lowered the barrier with rollup services, it still requires deep technical expertise. For example, Kraken's Ink project mobilized about 40 developers. For CEXs, independently developing and operating such infrastructure is too burdensome. Their goal is more focused on expanding platform business through infrastructure rather than building high-performance underlying infrastructure.

Regulatory risk also makes it difficult to implement Layer 1. Layer 1 chains usually require issuing a native token, but in Korea's regulatory environment, token issuance is nearly impractical and comes with strict compliance risks. Therefore, a Layer 2 model that can operate without relying on a native token has become the most realistic choice—aligned closely with Coinbase's approach.

In the development path of Layer 2, there are several technology stacks to choose from, but globally, CEXs generally view Optimism (OP) Stack as the de facto industry standard. Both Coinbase's Base and Kraken's Ink are built on this foundation and have gradually established a reference paradigm for "platform-owned chains." Robinhood is a special case as it chose Arbitrum due to different strategic goals. Coinbase and Kraken focus on achieving broad ecosystem expansion through interoperability, while Robinhood focuses more on moving its financial services directly onto the chain. Arbitrum's higher level of customization and flexibility clearly aligns more with the latter's strategy.

For Upbit and Bithumb, their goal is similar to Coinbase's: they must rely on a large user base, expand on-chain services to break free from a fee-driven business model restriction, and open up new revenue streams. In this process, openness and interoperability are crucial. Therefore, if Upbit and Bithumb were to launch their own chain, the most likely choice would be a public Layer 2 based on the OP Stack.

Expected Scenario 2: Korean Won Stablecoin Infrastructure

Another possible path is for Upbit and Bithumb to build infrastructure specifically around the Korean Won stablecoin through their own chain.

Both major CEXs have been active in the stablecoin market, with Upbit and Bithumb both having submitted trademark applications related to stablecoins. Upbit has even officially announced a partnership with South Korea's leading mobile payment service, Naver Pay, to enter the Korean Won stablecoin market.

Focusing on Upbit as the most likely driver, a realistic scenario is: Naver Pay issues a Korean Won-based stablecoin, while Upbit provides the blockchain infrastructure. This structure can bypass the restrictions of the "Virtual Asset Business Rights Act," which prohibits platform trading in virtual assets issued by itself or affiliates.

Under this model, the key is to build dedicated infrastructure optimized for stablecoins. They can incorporate real-world payment features and privacy protection mechanisms to offer differentiated services. For example, the network can be designed to allow users to directly pay gas fees with the Korean Won stablecoin. This is similar to the USDC's Arc Network (@arc) model, which aims to build a stablecoin-centric ecosystem where all transactions revolve around stablecoins. Such an architecture can provide users with a stable cost experience while creating sustainable market demand for the Korean Won stablecoin.

Of course, there are still technical constraints. Optimism by default uses Ethereum to pay gas fees and has stopped supporting custom gas tokens. Therefore, a second-layer network based on Arbitrum with higher customization capabilities, or a Layer 1 blockchain with the Korean Won stablecoin as its native token, may be a more suitable choice.

Expected Scenario 3: Leveraging Korea's Liquidity Premium

One strategy that Upbit and Bithumb may adopt is to fully leverage the liquidity premium in the Korean market. Currently, Korea has significant fiat-denominated liquidity, ranking second globally in terms of trading volume. However, most of this liquidity is still mostly confined within the CEX's internal systems.

CEXs can issue wrapped tokens based on user-deposited assets, such as upBTC or bbBTC. The cbBTC launched by Coinbase is a typical example. Although such wrapped tokens can be used on other chains, if the platform provides convenience within its own application, such as one-click consolidation, users are likely to stay on the platform's native chain. This not only attracts projects to join the relevant ecosystem to gain liquidity but also promotes ecosystem activity, thereby helping the platform earn revenue at the infrastructure level. In addition, the platform can use these wrapped tokens to directly test more business models, including lending.

Expected Scenario 4: Entry into the Pre-IPO Equity Tokenization Market

Another potential path is for Upbit and Bithumb to enter the market of tokenizing equity in pre-IPO companies. Currently, Upbit has been operating pre-IPO equity trading through the Ustockplus platform and has accumulated some experience. However, this model still remains at the P2P matching level, where the buyer has to wait for the seller to place an order, and if there is no trading counterparty, the transaction cannot be completed. This model faces issues such as insufficient liquidity and unpredictable execution efficiency.

Tokenizing pre-IPO equity on their own chain can significantly change the current situation. Tokenized stocks can achieve continuous trading through liquidity pools or market makers, and ownership transfer is automatically executed by smart contracts and transparently handled. In addition to improving trading efficiency, it can also implement on-chain features such as automatic dividends, conditional trading, programmable shareholder rights, designing financial products that are difficult to achieve in the traditional securities system.

It is worth noting that Naver recently expressed interest in acquiring a portion of the shares of Ustockplus, a subsidiary of Dunamu. In this model, Upbit can provide on-chain infrastructure, while Naver is responsible for platform operation and physical equity management. This structure is feasible within the existing regulatory framework: it effectively separates trading infrastructure from securities management functions, reducing institutional risks and allowing the platform to enter the equity tokenization market, addressing the shortcomings of existing services.

Conclusion

We have explored various possible scenarios for Upbit and Bithumb to launch their own blockchains, but there are still many obstacles in reality. Among them, regulation is the biggest constraint. South Korea adopts a "positive list-based" regulatory approach, which means that services not expressly provided by law are difficult to land. Furthermore, once recognized as a large enterprise group, the two platforms face a higher compliance burden. Additionally, they lack Web3-native leaders like Jesse Pollak, head of Coinbase Base, and the technical complexity further increases the difficulty. In the short term, the likelihood of such public chains truly taking shape remains low.

However, this does not mean that the outlook is entirely bleak. Since the peak in trading volume in 2021, local trading volume has continued to decline; global competition has intensified; the growth potential of a single fee model is limited; and previous attempts at diversification have not yielded significant results. To achieve sustainable growth, new drivers must be sought. In this context, a bold experiment with a self-built chain may become a new pillar, reflecting the most realistic diversification strategy in line with its competitive advantages (a large user base and abundant liquidity).

Of course, all of this is contingent on a shift in regulatory attitudes. If policies can provide more institutional flexibility while ensuring the healthy development of the market, Upbit and Bithumb will be able to more actively advance diversified business exploration. This could not only drive the growth of the two major platforms themselves but also enhance the competitiveness of the entire South Korean blockchain ecosystem.

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