South Korea plans to tighten the regulation of Token lending services with standards equivalent to those in the stock market.
South Korean financial authorities are planning to apply stricter regulations for Token lending services on cryptocurrency exchanges to control risks similar to securities trading activities.
MAIN CONTENT
South Korea will apply stock market-like legal standards for Token lending services.
Bithumb and Upbit are offering Token lending rates that are high compared to collateral.
The new regulations regard Token lending services as equivalent to short selling, aiming for phase 2 of the digital asset law.
How is Token lending service currently being implemented in South Korea?
Individuals and organizations in South Korea can borrow Tokens up to 400% of the collateral value on some major exchanges. For example, Bithumb allows borrowing Tokens up to four times the collateral value, while Upbit applies a maximum Bitcoin lending rate of 80% of the collateral. These figures show that the scale of the service has developed significantly with high risk.
Why do South Korean regulators view Token lending services as short selling activities?
According to assessments by financial experts and regulatory agencies, Token lending is essentially similar to short selling in securities as borrowers use borrowed Tokens to sell on the market, creating pressure on prices and promoting leveraged trading. Therefore, regulating Token lending services is necessary to limit financial risks and protect users.
"Token lending services are similar to short selling in the stock market, so there needs to be a sufficiently strict legal framework to control and protect financial stability."
Quote from an official of the Financial Services Commission of South Korea (FSS), 7/2024
When will the new regulations be applied in the digital asset law?
The South Korean financial agency plans to apply management standards for Token lending services in the second phase of the legal framework for digital assets. This phase focuses on completing the legal framework for complex financial services in the cryptocurrency sector, enhancing transparency and market stability.
"This is an important step to ensure the cryptocurrency market develops sustainably and safely for investors."
Mr. Kim Min-seok, Director of the Financial Services Commission of South Korea, 6/2024
Details comparing Token lending services between Bithumb and Upbit
Exchange Service Type Maximum Loan-to-Value Ratio Bithumb Diverse Token Lending 400% Upbit Bitcoin Lending 80%
Frequently Asked Questions
What is Token lending service?
Token lending is a form of providing Tokens for borrowers to use, usually for the purpose of leveraged trading or liquidity, widely applied on cryptocurrency exchanges.
Why are regulators concerned about this service in South Korea?
Regulators are concerned that Token lending services carry significant risks, similar to short selling securities, which could cause strong volatility and negatively impact the cryptocurrency market.
How will the new regulations affect exchanges?
Exchanges will have to comply with standards similar to those in the stock market, ensuring transparency, limiting lending according to regulations to protect users and stabilize the market.
When will the new law in South Korea take effect?
The new law is expected to be applied in the second phase of the digital asset law, around the end of 2024 to early 2025.
Which exchange is currently offering the largest loan amount?
Bithumb is offering Token lending services with a ratio of up to 400% of the collateral value, the highest in South Korea currently.
Source: https://tintucbitcoin.com/quan-ly-chat-token-lending-2024/
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