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Korea's financial watchdog expresses concern over crypto lending and margin trading services

Published: 30 Jul. 2025, 17:49

The price of Bitcoin is displayed on a digital board at Bithumb's Gangnam branch in Seocho District, southern Seoul, on July 18. [YONHAP]

Korea’s top financial regulators have raised concerns over the legal and investor protection risks associated with recently launched crypto lending and margin trading services offered by Upbit and Bithumb.

Upbit, the country’s largest crypto exchange, and Bithumb, its second-largest, together dominate Korea’s digital asset market.

According to the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) on Wednesday, officials summoned executives from the country’s five major crypto exchanges on Friday to discuss the new offerings and express concerns over leverage-related risks and potential gaps in investor protections.

Bithumb began offering a service on July 4 that allows users to borrow cryptocurrencies using their digital assets or won as collateral, with up to four times leverage. The platform supports 10 cryptocurrencies, including Bitcoin, Ethereum, Ripple and Tether.

On the same day, Upbit introduced a similar lending service for three cryptocurrencies — Tether, Bitcoin and Ripple — also backed by crypto assets or fiat deposits.

These services enable users to borrow cryptocurrencies they do not own and sell them, profiting if prices fall — a strategy that effectively facilitates short selling in the virtual asset market.

Regulators have expressed alarm over the high level of risk, particularly with Bithumb’s fourfold leverage, which exceeds the 2:1 leverage cap permitted in Korea’s equity market.

As a result, regulators flagged legal ambiguities and systemic risks in the two firms’ services, citing insufficient investor protection.

In response to the warnings, Upbit suspended its Tether lending product on Monday. The decision was based on concerns that lending out stablecoins like Tether in return for fees could be interpreted as a form of consumer lending — potentially falling under Korea’s lending laws.

Bithumb, meanwhile, adjusted its service structure on Tuesday but maintained its fourfold leverage model. The company has temporarily halted new lending applications due to depleted lending supply.

With concerns continuing to mount, the FSC and FSS plan to establish a task force with the industry to draft voluntary self-regulation measures for crypto lending and margin trading. This move reflects a shared understanding that voluntary regulation is necessary until the second phase of crypto legislation is complete.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JEONG JAE-HONG [[email protected]]