Coin Lending Services by Upbit and Bithumb Surpass 500,000 Transactions Amid Regulatory Scrutiny

South Korea’s leading cryptocurrency exchanges, Upbit and Bithumb, have seen their recently launched coin lending services reach an impressive milestone of nearly 500,000 cumulative transactions within just three months. The rollout of these services in July precipitated major activity in the crypto lending market, despite looming regulatory challenges. Concurrently, over 20,000 liquidations took place during the same period, although tightened regulatory measures led to a significant drop in forced liquidation rates.

Transaction Surge: Upbit vs. Bithumb

Recent data from the Financial Supervisory Service (FSS), shared by lawmaker Shin Jang-sik of the Progressive Party, reveals that by the end of September, these exchanges collectively tallied 486,488 coin lending transactions. Notably, Bithumb accounted for the lion’s share, recording 474,821 transactions, dwarfing the 10,667 transactions facilitated by Upbit. This marked divergence highlights Bithumb’s aggressive approach to its lending services.

Varied Strategies in Coin Lending Services

Both exchanges introduced their coin lending offerings on July 4 but pursued distinct models. Upbit’s “Coin Borrowing” allowed users to borrow Bitcoin (BTC) using Korean won as collateral. Bithumb, in contrast, supported 10 cryptocurrencies—including Tether (USDT), Ethereum (ETH), and Solana (SOL)—offering users borrowing limits of up to four times their existing holdings.

Despite differences in structure, competition between the two platforms intensified. However, the landscape shifted drastically following regulatory intervention. Financial authorities expressed concerns over the potential risks of coin lending services. Upbit responded by halting new and additional lending applications entirely, signaling compliance with the impending guidelines. Meanwhile, Bithumb opted to continue its operations, choosing to tighten collateral standards instead of suspending services entirely.

Regulatory Oversight and Compliance Adjustments

Documents from lawmaker Shin’s office further reveal significant developments following regulatory scrutiny. After financial authorities recommended suspending coin lending operations, Bithumb expanded its user base, increasing its daily average number of users from 532.6 to 1,255.5. Similarly, daily transactions climbed from 3,927.3 to 5,260.1 over the same period.

Despite receiving formal regulatory guidelines in September, Bithumb maintained its aggressive stance, which eventually led to the Digital Asset Exchange Alliance (DAXA) issuing a formal “warning” against the exchange for breaching self-regulatory rules. In response, Bithumb adjusted its collateral ratio dramatically, reducing it from 200% to 85%.

Liquidation Rates Fall Amid Regulatory Guidance

Regulations also impacted forced liquidations. Between July and September, Bithumb saw 21,301 forced liquidations, peaking with a liquidation rate of 12.6% in July. Regulatory intervention triggered significant improvement, lowering the rate from 11.4% pre-guidance to merely 0.5% after implementation, maintaining a consistent 1.7% in September.

Upbit’s forced liquidation rate followed a similar pattern, dropping from 1.3% before regulatory measures to zero after intervention. The data further indicates that younger users were disproportionately affected, as 45.6% of Bithumb's liquidations involved individuals under 30 years of age, compared to Upbit’s smaller pool of 71 liquidations, of which 50.7% involved borrowers under 30.

Lending Fee Transformation and Consumer Protection Concerns

The regulatory intervention extended to lending fee structures as well. Although neither exchange disclosed specific revenue figures, lawmaker Shin’s calculations based on existing fee models suggest an annualized rate of 18.25% for Bithumb and 10.95% for Upbit. Notably, prior to introducing its new “Lending Plus” product, Bithumb’s lending services charged an exorbitant annual interest of 121%. Current regulations cap annual fees at 20%, offering enhanced consumer safeguards.

Lawmaker Shin has raised concerns over the broader implications of these coin lending services. “While exchanges enjoy robust revenues from lending fees, users are disproportionately impacted by forced liquidations and high borrowing costs,” Shin remarked. He emphasized the need for additional user protection measures to address these inequalities and strengthen consumer rights in the cryptocurrency lending space.

Final Thoughts

Upbit and Bithumb's coin lending developments underline a dynamic yet volatile market environment that is balancing innovation with regulatory compliance. While the services have witnessed significant engagement, regulatory scrutiny has reshaped operational practices, driving noticeable improvements in areas like liquidation rates and fee restrictions. As these exchanges navigate heightened oversight, calls for robust consumer protections are increasingly vital to ensure the fairness and sustainability of the burgeoning crypto lending industry.