Korean Regulators Flag Risks in Crypto Lending Services, Push for Self-Regulatory Task Force

Korea’s financial authorities have raised concerns over the recently launched crypto lending services by Upbit and Bithumb, citing legal uncertainties and insufficient investor protections. The services allow users to borrow coins they don’t own and sell them short, essentially enabling short-selling strategies. Bithumb, in particular, offers leverage up to four times the user’s capital, prompting criticism. In response, the authorities will form a task force with industry players to establish a self-regulatory framework.

Following the regulatory warning, Upbit suspended its Tether lending service, while Bithumb stated that although new loan requests are temporarily paused due to limited supply, the fourfold leverage model remains unchanged. With legislation still in progress, authorities emphasized the need for interim self-regulation, including limits on margin trading and short-selling, and mandatory investor education.

Like traditional stock markets, the upcoming crypto self-regulation may include protections such as the uptick rule, short position disclosures, and training requirements for retail investors. The overarching goal is to introduce a basic safeguard for participants engaging in high-risk crypto products.

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