Rising 'Coin Regulation Debate' Amid Halved DeFi Market

DeFi Market Deposits Evaporate by 60% in 6 Months
Regulation Debate Emerges Over Crypto-Backed Loan Platforms

On the 15th, when Bitcoin prices showed a downward trend, cryptocurrency prices were displayed at the Bithumb Customer Center in Seocho-gu, Seoul. (Photo by Yonhap News)

[Asia Economy Intern Reporter Seohee Lee] As cryptocurrencies plummet, a ‘coin run’ phenomenon is materializing, with investors rushing to withdraw their principal. Consequently, concerns are growing over the insolvency of crypto asset lending platforms that lend other crypto assets using crypto assets as collateral. Since these crypto asset lending platforms essentially function as banks, there are calls for regulations to protect depositors.

Cryptocurrencies continue to fall relentlessly. According to the cryptocurrency information site CoinMarketCap, the global cryptocurrency market capitalization dropped to around 1,102 trillion KRW as of 7 p.m. on the 15th. It had nearly reached 3,800 trillion KRW last November, meaning 2,700 trillion KRW evaporated in just seven months.

Bitcoin and Ethereum, which rank first and second in market capitalization, led the decline. As of 9:30 a.m. on the 16th, the price of 1 Bitcoin listed on the domestic cryptocurrency exchange Upbit was 29,024,000 KRW, down 0.77 percentage points from the previous day. The Bitcoin price falling below the 30 million KRW mark is the first time in about 1 year and 6 months since December 29, 2020. The decline in Ethereum, ranked second in market capitalization, is even more severe. Ethereum, which was priced in the 2.3 million KRW range on the 10th, dropped to 1,593,600 KRW as of 9:30 a.m. on the 16th. The price fell by more than 30% in just six days.

As the so-called ‘coin run’ phenomenon intensifies, concerns are growing that the crypto asset collateral loan market may face insolvency. The situation began when the US crypto asset collateral lending platform Celsius halted customer asset withdrawals. Celsius acted as a kind of bank, borrowing customers’ crypto assets and lending them to other investors. However, on the 13th, Celsius froze transactions and temporarily suspended transfers, citing ‘extreme market conditions’ due to concerns over financial pressure and a shortage of reserves needed to return assets to customers amid falling coin prices.

These concerns have spread beyond Celsius to the entire DeFi market. According to the coin statistics site DeFiLlama, the total deposits in the global DeFi market decreased by 69% over six months, from 325.8 trillion KRW in December last year to 102.15 trillion KRW on the 16th. The DeFi market refers to a market where all participants freely contract without intervention from institutional financial bodies such as central banks. Products that involve borrowing against coins as collateral mainly dominate this market.

The problem is that there are no adequate measures to cope with insolvency situations. Although crypto asset lending platforms function as a kind of bank, unlike actual banks, there are no regulations applied to protect depositors. This is why there are calls for appropriate regulations to be established for crypto asset lending platforms.

Regarding this, Professor Taegi Kim of Dankook University’s Department of Economics said, “The most important thing in cryptocurrency is credit and trust, but currently, the system does not seem to support these aspects.” He added, “Institutionalizing crypto assets does not mean the government controls everything. The government should be seen as intervening in the issuance and circulation of currency to provide a minimum guarantee of credit.”

This content was produced with the assistance of AI translation services.