Bithumb Lowers Crypto Lending Limits Amid Regulatory Pressure: A Closer Look

Bithumb, one of South Korea's leading cryptocurrency exchanges, has recently reduced its lending limits in response to warnings from the Digital Asset eXchange Alliance (DAXA). This decision reflects the increasing regulatory oversight within South Korea's digital asset industry and exemplifies the challenges crypto platforms face as they navigate a growing web of compliance measures.

Lending Limits Slashed from 200% to 85%

On October 25, South Korean industry insiders disclosed that Bithumb had reduced the lending ratio on its "Lending Plus" service, lowering the maximum limit from 200% of the collateral value to just 85%. Lending Plus is a collateral-based crypto lending platform where users can lend their virtual assets in exchange for interest. However, if the value of the collateralized assets drops below a predefined threshold, they are subject to liquidation—a common risk in leveraged financial services.

This shift comes directly after a warning issued by DAXA on October 23, 2023. The alliance cited violations of guidelines concerning the scope of services and lending limitations, emphasizing the importance of maintaining self-regulatory standards. DAXA issued a stern reminder: “Autonomous regulatory guidelines must be followed to ensure user protection. Repeated violations may result in escalated sanctions.”

Regulatory Scrutiny Drives Industry Adjustments

Bithumb launched Lending Plus in June 2023, initially offering loans for up to four times the value of collateral—the equivalent of a 400% lending ratio. At its peak, the platform supported over ten major cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETH). However, as crypto lending services gained traction, they also attracted attention from South Korea's Financial Supervisory Service (FSS). The FSS urged major crypto exchanges to conduct comprehensive reviews of their lending services and ensure compliance with evolving regulatory norms.

Even before the latest reduction to 85%, Bithumb had already adjusted its policies. The maximum lending limit was scaled back from KRW 1 billion (approx. USD 750,000) to KRW 200 million (approx. USD 150,000), and its lending ratio halved from 400% to 200%. Despite these preemptive changes, DAXA highlighted that Bithumb had continued operating parts of the platform, even after regulators requested the suspension of new lending business activities.

Compliance with New Guidelines and an Expanded Portfolio

In response to the escalating concerns, DAXA has implemented stricter guidelines, limiting eligible loan assets to the top 20 cryptocurrencies by market capitalization. To align with these new regulations, Bithumb has expanded its portfolio of supported assets with seven additions: Ethereum Classic (ETC), Chainlink (LINK), TRON (TRX), KAIA (KAIA), Sei (SEI), Ethereum Name Service (ENS), and Sandbox (SAND). By incorporating these assets, the platform aims to broaden its offerings within the boundaries of permissible activity while enhancing compliance.

Bithumb made a statement affirming its stance on the matter: “We are modifying certain policies to comply with the updated guidelines.” Despite these efforts, however, questions remain. Specifically, Bithumb’s Lending Plus platform operates in collaboration with a third-party service provider, BlockTourial. DAXA’s guidelines explicitly require exchanges to directly manage their lending services, leaving the legality of such a partnership open to interpretation and possible regulatory challenges.

The Future of Crypto Lending in South Korea

Bithumb's latest policy adjustments underscore the growing complexities of operating in South Korea’s increasingly regulated cryptocurrency environment. As authorities shift focus to user protections and financial stability, crypto exchanges are being forced to reassess their products and operational models. Bithumb’s alignment with DAXA guidelines suggests the company is committed to compliance, but its reliance on third-party operations continues to raise questions about its adherence to regulatory mandates.

The South Korean crypto landscape is evolving rapidly, with heightened scrutiny placing pressure on lending services like Bithumb's. While more stringent regulations aim to foster trust and safeguard users, they may also limit the scope of innovation for platforms in the space. As the debate surrounding compliance and operational structures persists, Bithumb's experience serves as a broader case study in balancing regulatory demands with user offerings in the world of digital assets.