South Korean financial regulators are increasing pressure on crypto exchanges following the launch of high-leverage lending services.
Launch of Crypto Lending Services
On July 4, Bithumb launched its new crypto lending service, which enables users to borrow digital assets up to 4x leverage. The service only requires trading in collateral, which is either Korean won or crypto, and the platform considers key coins or cryptocurrencies, including Bitcoin, Ethereum, Ripple, and Tether. On the same day, Upbit launched a similar feature, offering users the option to borrow Bitcoin, Ripple, and Tether by pledging either fiat or crypto.
Investor Risks and Potential User Migration
Regulators noted that the 4x leverage Bithumb offers is twice the highest extent to which a Korean stock exchange can operate. They expressed concerns that these lending services operate in a legal grey area with minimal protection for users. Upbit temporarily shut down its Tether lending function as it is regarded as a consumer lending activity in domestic law. It is feared that heavier regulation will push users to unregulated offshore exchanges, increasing risks for domestic traders.
Regulatory Prospects and Market Development
The FSC and FSS are collaborating with industry leaders to set voluntary standards for crypto lending and margin services. These rules would act as stopgap measures until official laws become operative. South Korea is also taking significant steps, with plans to introduce spot crypto ETFs by the end of 2025, when robust investor protections will be in place, and eight domestic banks are working to release won-backed stablecoins by 2026.
The crackdown signals a clear shift in South Korea’s regulatory approach, aiming to rein in risky crypto practices while preparing for a regulated digital asset market.
