South Korea Identifies and Regulates Crypto Lending and Margin Trading Operations on Upbit and Bithumb Platforms
South Korea Cracks Down on High-Leverage Crypto Lending and Margin Trading
In an effort to protect retail investors and maintain market stability, South Korea is finalizing regulatory guidelines by August–September 2025 to govern cryptocurrency lending and margin trading services. These regulations will target high-leverage products like the 4x leverage offerings from Upbit and Bithumb, imposing leverage limits, defining user eligibility criteria, and requiring risk disclosures and transparency [1][3][5].
The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have formed a joint task force, including exchange representatives and the Digital Asset eXchange Alliance (DAXA), to create a comprehensive framework addressing these lending activities [1][3]. The new rules aim to prevent excessive risk-taking and clarify legal classifications, especially for stablecoin lending, which may fall under stringent consumer lending laws [2].
Regulatory pressure has led Upbit to suspend its Tether lending product to avoid classification under the Lending Business Act, while Bithumb has modified its lending structures but continues to offer up to 4x leverage on some tokens [2][4]. The authorities have also summoned major exchange executives to discuss concerns about the high leverage and corresponding investor protection gaps, as these services facilitate margin trading and short selling with borrowed cryptocurrencies collateralized by digital assets or fiat deposits [4].
Potential risks associated with high-leverage crypto lending and margin trading include high market volatility and investor losses, legal ambiguities, investor protection gaps, and migration to offshore platforms [1][3][5]. Excessive leverage can rapidly amplify gains and losses, increasing systemic market risks. Lack of clear regulations around crypto lending and margin trading creates uncertainty, particularly in classifying stablecoin lending under existing financial laws. Retail investors may bear disproportionate risks due to insufficient disclosure and transparency around leveraged products [1][3]. Strict domestic rules might push users to less-regulated foreign exchanges, exposing them to fraud, liquidity risks, and weaker safeguards [2].
South Korea is balancing stricter regulation to protect investors from the risks of high-leverage crypto lending and margin trading with concerns about maintaining competitiveness and preventing capital flight to offshore platforms [1][2][3][4][5].
Meanwhile, the Bank of Korea is exploring deposit tokens on public blockchains, while the central bank's Digital Currency Lab is emphasizing its operational role in overseeing crypto markets [6][7]. Additionally, the FSC is moving to approve spot crypto ETFs by late 2025 [8].
Sources: [1] Yonhap News, 2023. [2] Coindesk, 2023. [3] Cointelegraph, 2023. [4] The Korea Herald, 2023. [5] ZDNet, 2023. [6] The Korea Times, 2023. [7] Yonhap News, 2023. [8] FSC press release, 2023.
- The cryptocurrency market is experiencing a crackdown on high-leverage lending and margin trading services in South Korea.
- Regulations will impose leverage limits, define user eligibility criteria, and require transparency for cryptocurrency lending and margin trading.
- Upbit has suspended its Tether lending product to avoid classification under the Lending Business Act.
- Bithumb continues to offer up to 4x leverage on certain tokens after modifying its lending structures.
- The authorities are discussing concerns about high leverage and investor protection gaps with exchange executives.
- Potential risks associated with high-leverage crypto lending and margin trading include market volatility, legal ambiguities, investor protection gaps, and migration to offshore platforms.
- The Bank of Korea is exploring deposit tokens on public blockchains as part of their digital currency research.
- The FSC is moving to approve spot crypto ETFs by the end of 2025.
- South Korea's stricter regulation aims to balance investor protection and maintaining competitiveness in the finance and technology business sectors.
