According to CoinDesk, the South Korean Financial Supervisory Commission (FSC) has ordered exchanges to suspend the launch of new cryptocurrency lending products until formal regulatory guidelines are established, citing increasing risks to users and market stability.
Regulators specifically pointed out that recent events at Bithumb highlight the severity of the problem. In June of this year, over 27,000 users utilized the exchange's lending services, of which 13% were forced to liquidate due to a drop in collateral value.
This guidance from the FSC allows existing lending contracts to continue, but prohibits the launch of new lending services. Officials stated that if the platform ignores this directive, on-site inspections and other regulatory measures will be undertaken. Formal lending regulations are expected to be announced in the coming months.
This crackdown comes as global cryptocurrency leverage levels are rising back to bull market levels. A report from digital asset management firm Galaxy Digital shows that crypto collateralized loans increased by 27% in the second quarter, totaling $53.1 billion, the highest level since early 2022. The $1 billion liquidation that occurred last week also highlighted leverage risks, as Bitcoin dropped from $124,000 to $118,000, triggering a chain liquidation in the market.
Some analysts warn that the entire system is showing signs of stress, including tightening DeFi liquidity, extended withdrawal queues for staked Ether (ETH), and a widening spread between on-chain and off-chain US dollar lending rates.
However, not everyone agrees with the approach taken by the South Korean authorities. Bradley Park from DNTV Research pointed out that what is truly needed are better safeguards, not a complete shutdown of services. He told CoinDesk:
"A reasonable approach should be to upgrade the user interface/user experience (UI/UX), enhance risk disclosure, and strengthen loan-to-value control, in order to safely manage risks."
Park added that most lending on exchanges is actually based on stablecoins, used to establish short positions.
Park believes that the real concern of regulators may lie in market structure distortions, such as the 'kimchi premium' turning negative (when Korean exchange prices are lower than international markets), rather than the services themselves.
He also pointed out that the transparency gap exacerbates the difficulty of regulation: Bithumb discloses the scale of its lending business, but South Korea's largest exchange, Upbit, does not make such disclosures. This lack of transparency may make it harder for regulators to assess systemic risk and could be a key reason for the FSC's decision to take 'comprehensive suspension' measures.
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