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Photo: Upbit, courtesy of Dunamu |
[Alpha Biz= Paul Lee] SEOUL – South Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have voiced strong concerns over coin lending and leverage-based investment services launched by local cryptocurrency exchanges, citing risks to both investor protection and market stability.
On July 25, officials from both agencies summoned executives from five major crypto exchanges to hear their plans for coin lending programs and delivered warnings about potential dangers. Regulators noted that the services currently lack sufficient investor safeguards and could undermine the financial soundness of virtual asset providers.
Earlier this month, Upbit introduced a service allowing users to borrow up to 80% of collateral value — using either KRW deposits or digital assets — for three cryptocurrencies: Tether, Bitcoin, and Ripple. Bithumb followed with a service enabling users to borrow coins at up to 4x leverage against their holdings or cash, supporting 10 different tokens.
These offerings effectively allow investors to short-sell coins by borrowing and selling them, then buying them back at a lower price if values drop. In Bithumb’s case, investors can take on four times their capital in leveraged bets, sparking regulatory criticism since South Korea’s stock market limits leveraged ETFs to 2x leverage.
With the country’s second-phase crypto legislation still in development, regulators emphasized the need for industry self-regulation in the interim. Expected measures could mirror stock market rules, including caps on short selling and margin trading, mandatory investor education, and eligibility requirements for high-risk products.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
