Recently, as excessive funds flowed into the coin lending services launched by cryptocurrency exchanges, financial authorities began working on guidelines, focusing primarily on whether to allow leverage (borrowed investment).
Upbit and Bithumb launched services for lending cryptocurrency last month, with Upbit allowing up to 80% of the collateral for three types including Bitcoin and Tether, while Bithumb lent up to four times (400%) the collateral for ten types including Bitcoin and Ethereum.
According to the cryptocurrency industry on the 5th, financial authorities will continue to discuss guidelines for cryptocurrency lending services with cryptocurrency exchanges and the Digital Asset Exchange Association (DAXA) this week, following discussions from last week. The discussions that began with the launch of the task force (TF) on the 31st of last month aim to establish a draft by August. Major topics are expected to include the scope of assets eligible for lending, disclosure methods by lending item, and restrictions on service recipients.
The lending service allows investors to borrow coins they do not own to sell, and then repurchase them when the price falls to pay back. This effectively enables a "short selling strategy," and shortly after the service was opened, an enormous amount of transaction value poured in. According to the cryptocurrency market site CoinGecko, the transaction value for Bithumb, which opened the service on the 4th of last month, soared from $700 million on the 4th to $2.9 billion on the 18th.
Bithumb's lending, which allows users to borrow more cryptocurrency than the value of the collateral they hold, is reported to have received direct scrutiny from financial authorities. The authorities noted that while leveraged exchange-traded funds (ETFs) listed on the domestic stock market are allowed to hold a maximum of two times their assets, and single stocks face restrictions on leveraged investments, they are concerned that such services have been introduced in the cryptocurrency market, which lacks adequate investor protection measures.
Financial authorities have requested a review of services with significant user risk, such as providing leverage to cryptocurrency exchanges and monetary lending, which carry legal risks, alongside the launch of the TF. Upbit has terminated its lending support for Tether, and Bithumb has begun integrating its existing "lending" and "lending plus" services. In addition, Coinone and Kobit, which were internally preparing coin lending services, have decided to monitor the situation.
A financial authority official said, "Leverage is the biggest concern among all matters," noting that "there is agreement among authorities and the industry that minimum standards should be established for managing cryptocurrency lending services before additional legislation, and a draft will be prepared within this month."