- Bithumb and Upbit face scrutiny over high-leverage crypto lending.
- Regulators demand stronger investor protections amid rising crypto market risks.
- New rules may push users to offshore platforms for trading.
South Korean financial regulators are increasing pressure on crypto exchanges following the launch of high-leverage lending services. The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) recently summoned executives from five major exchanges, including Bithumb and Upbit, to address concerns over margin trading and investor safety.
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.
Also Read: Visa Adds Stellar to Its Stablecoin Settlement Platform, Expanding Blockchain Options
Upbit launched a similar feature the same day, offering users the option to borrow Bitcoin, Ripple, and Tether by pledging either fiat or crypto. Users can also make short sales on these products, which are borrowed assets, raising more concerns on the regulator’s front.
Regulators noted that the 4x leverage Bithumb offers is twice the highest extent to which a Korean stock exchange can operate. This casts doubt on the risk to the investor and legal structure of such services.
Fears Grow Over Investor Risk and Offshore Migration
Regulators say these lending services operate in a legal grey area with minimal protection for users. Upbit followed up by temporarily shutting down its Tether lending function because it is regarded as a consumer lending activity in domestic law.
Like Bithumb, the new lending application was halted when the platform was overfilled, but the 4x leverage option remained in effect. The two platforms are taking minimal action, yet regulators are urging them to take more action.
The FSC and FSS are currently collaborating with industry giants to try to set voluntary standards for crypto lending and margin services. These rules would likely act as stopgap measures until official laws become operative.
It is feared that heavier regulation will push users to unregulated offshore exchanges, which undermine government control and are more hazardous to domestic traders.
In the meantime, South Korea is taking more large steps in the world of crypto. The FSC will introduce spot crypto ETFs at the end of 2025, when they will have robust investor protection. Eight domestic banks are also 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.
Also Read: Cardano’s USDM Stablecoin Sparks Fierce Debate Over Privacy and Complexity
