Michaela
Summary: Why did South Korea suspend crypto lending on local exchanges?
South Korea suspended crypto lending due to concerns over insufficient investor protections. Regulators worry users could face large losses if asset values fluctuate sharply. They are now developing guidelines to ensure safer and more transparent lending practices.
South Korean financial regulators have announced plans to develop guidelines for virtual asset lending services in collaboration with the industry next month. The move follows concerns over insufficient investor protections in the offerings recently launched by leading domestic exchanges Upbit and Bithumb.
Local news outlet Yonhap News reported that South Korea’s Financial Services Commission and Financial Supervisory Service have convened their first meeting to form a task force for creating Virtual Asset Lending Service Guidelines. The initiative involves collaboration with the Digital Asset Exchange Joint Council (DAXA) and five domestic virtual asset exchanges.
On August 4, Bithumb launched a lending service that allows users to borrow up to four times the value of their assets using digital coins or Korean won as collateral. Upbit also introduced a similar service, enabling users to borrow up to 80% of selected cryptocurrencies, including Tether, Bitcoin, and Ripple, backed by Korean won deposits or digital assets.
A key concern is that users of these crypto lending services could face substantial losses if the value of the borrowed virtual assets experiences sharp fluctuations. Furthermore, the task force aims to create a foundational regulatory framework for virtual asset lending services that all industry participants must follow, considering international regulatory standards, stock market oversight practices, and the distinct features of South Korea’s domestic crypto market.
The guidelines are set to address key aspects of virtual asset lending, including permissible leverage, eligible users and assets, user education and risk notifications, suitability principles, and reporting requirements for lending activity by asset type. They will also encompass internal control standards that exchanges must maintain to operate additional services safely.
Additionally, financial authorities are asking virtual asset exchanges to review high-risk services, including those offering leverage or involving crypto lending, which could carry legal liabilities. The regulators plan to finalize guidelines next month and incorporate both the guidelines and operational developments into the second phase of virtual asset legislation.
The new guidelines could set a global precedent, signaling South Korea’s commitment to balancing innovation with investor protection in the rapidly evolving crypto sector. Exchanges and market participants are closely watching how these measures will influence the competitiveness and transparency of the domestic virtual asset market.
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Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
