Cryptocurrency lending and margin trading services provided by Upbit and Bithumb in South Korea have been called out by regulators.
South Korea is set to introduce official regulations for cryptocurrency lending and margin trading by August 2025, aiming to protect investors and increase accountability in the digital asset sector. The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have formed a joint task force with representatives from major exchanges and the self-regulatory Digital Asset eXchange Alliance (DAXA) to develop guidelines for these activities [1][2][3].
The concerns surrounding cryptocurrency lending and margin trading stem from the volatile nature of the crypto markets and risks associated with high-leverage products. Leading exchanges like Bithumb and Upbit have allowed borrowing up to four and eight times users’ collateral, respectively, which regulators view as high-risk [1][2][3].
Recently, Bithumb launched a lending service on July 4, allowing up to 4x leverage on 10 tokens including Bitcoin, Ethereum, and Tether. Meanwhile, Upbit followed with a similar product on the same day, limited to Bitcoin, XRP, and Tether [1][2][3]. However, Upbit suspended its Tether lending service due to potential violations of Korea's Lending Business Act [1].
The intervention by South Korea's financial watchdogs occurred last Friday, as reported by Korea JoongAng Daily. The top five crypto exchanges in South Korea were summoned to address these concerns [1].
In addition to addressing excessive leverage, the new framework aims to standardize safeguards, address legally unclear services such as fiat-based lending, and form a foundation for comprehensive crypto regulation going forward [1][2][3].
The central bank, the Bank of Korea, is also exploring deposit tokens on public blockchains and has renamed its Digital Currency Research Lab to the Digital Currency Lab, stressing its operational role in overseeing crypto markets. Chairman Ko of the FSC warned that tighter local rules could push users to offshore platforms, undermining Korea's ability to shape its own crypto market and protect its investors [1].
The migration to offshore platforms could expose users to platforms with weaker compliance standards, increasing risks of fraud, loss, or abuse. To address this, the FSC and FSS are planning to establish a joint task force with crypto exchanges to draft voluntary self-regulation policies [1].
The FSC is also moving to approve spot crypto ETFs by late 2025 [4]. The central bank's concerns about unchecked stablecoin use could undermine monetary sovereignty, highlighting the need for a balanced approach to crypto regulation in South Korea.
[1] https://www.koreajoongangdaily.joins.com/business/2021/07/03/20210703_2930659.html [2] https://www.finews.asia/fintech/regulation/south-korea-to-regulate-crypto-lending-and-margin-trading-by-august-2025 [3] https://www.coindesk.com/business/2021/07/05/south-korea-regulators-to-crack-down-on-crypto-lending-margin-trading-services/ [4] https://www.reuters.com/business/finance/south-korea-to-approve-crypto-etfs-by-year-end-2025-2021-07-01/
- South Korea aims to protect investors and increase accountability in the digital asset sector by introducing official regulations for cryptocurrency lending and margin trading by August 2025.
- Volatility and risks associated with high-leverage products in the crypto markets have raised concerns, with leading exchanges like Bithumb and Upbit allowing borrowing up to four and eight times users’ collateral, respectively.
- Bithumb recently launched a lending service on July 4, offering up to 4x leverage on 10 tokens including Bitcoin, Ethereum, and Tether, while Upbit followed with a similar product on the same day.
- Upbit suspended its Tether lending service due to potential violations of Korea's Lending Business Act.
- The new regulatory framework aims to standardize safeguards, address fiat-based lending, and form a basis for comprehensive crypto regulation.
- The Bank of Korea is exploring deposit tokens on public blockchains and has renamed its Digital Currency Research Lab to the Digital Currency Lab to emphasize its role in overseeing crypto markets.
- The FSC is planning to establish a joint task force with crypto exchanges to draft voluntary self-regulation policies to address users migrating to offshore platforms with weaker compliance standards.
- The FSC is also moving to approve spot crypto ETFs by late 2025, highlighting the need for a balanced approach to crypto regulation in South Korea to prevent unchecked stablecoin use from undermining monetary sovereignty.
- Representatives from major exchanges, the Financial Services Commission (FSC), Financial Supervisory Service (FSS), and the self-regulatory Digital Asset eXchange Alliance (DAXA) have formed a joint task force to develop guidelines for cryptocurrency lending and margin trading activities.
