This paper announces the launch of cryptocurrency short-selling and lending services by South Korea's largest virtual asset exchanges, Upbit and Bithumb, marking a first for the domestic market. These services, initiated on April 4th after financial authority approval, enable users to borrow digital assets against collateral for various investment strategies, including short selling.

The core methodology revolves around a collateral-based cryptocurrency borrowing system. Users deposit a designated asset (collateral) and, in return, borrow a specific cryptocurrency. The borrowed cryptocurrency can then be sold, anticipating a price decline. If the price falls, the user buys back the same amount of cryptocurrency at a lower price, repays the borrowed amount, and profits from the price difference. Conversely, if the price rises, the user incurs a loss. Both exchanges incorporate automatic liquidation mechanisms to manage risk.

Upbit's "Coin Borrowing" (코인빌리기) Service:

1. Supported Asset: Initially, only Bitcoin (BTC) can be borrowed. Future expansion to other digital assets is planned.
2. Collateral: Korean Won (KRW) is accepted as collateral.
3. Collateral Range: Users can deposit a minimum of KRW 100,000 and a maximum of KRW 50,000,000 as collateral.
4. Borrowing Limit: The amount of Bitcoin that can be borrowed is set between 20% and 80% of the collateral's value at the time of application, based on real-time market price. For example, with KRW 50,000,000 collateral, a user can borrow BTC worth KRW 20,000,000 to KRW 40,000,000.
5. Loan Term: The maximum repayment period is 30 days. Partial or full repayment is possible before maturity.
6. Fees:
   • A service fee of 0.05% is applied upfront.
   • An additional 0.01% fee accrues every 8 hours.
   • In the event of forced liquidation or maturity, a 1.5% fee is charged.
7. Forced Liquidation: An automatic compulsory repayment is triggered if the "Lending Ratio" (담보 자산의 현재 가치 비율, equivalent to collateralization ratio or margin ratio) reaches 92%. This mechanism is designed to prevent excessive losses for the borrower and protect the lender.
8. Eligibility: The service is limited to Korean individual members who have completed customer identification (KYC) and 2-channel authentication, agreed to the terms, and whose accounts are not under any usage restrictions (e.g., self-lock, high/habitual tax delinquents).

Bithumb's "Coin Lending" (코인대여) Service:

9. Supported Assets: Bithumb offers a wider range of borrowable assets compared to Upbit at launch, including Bitcoin (BTC), Tether (USDT), Ethereum (ETH), XRP, Solana (SOL), Dogecoin (DOGE), Cardano (ADA), Sui (SUI), Pepe (PEPE), and Ondo Finance (ONIT) – totaling 10 cryptocurrencies.
10. Collateral: Unlike Upbit's KRW-only collateral, Bithumb allows users to use existing crypto assets (e.g., Bitcoin) as collateral to borrow other cryptocurrencies for investment.
11. Borrowing Limit (Leverage): Users can borrow cryptocurrencies up to 4 times the value of their held assets used as collateral. This implies a leverage ratio. For example, if a user holds collateral worth $X$, they can borrow up to $4X$ in cryptocurrencies.
12. Loan Term: Similar to Upbit, the maximum borrowing period is 30 days. Early repayment is permitted.
13. Fees:
    • A daily fee of 0.05% is applied.
    • A risk management (automatic repayment) fee of up to 1.00% can be imposed during liquidation.
14. Forced Liquidation: An automatic repayment system activates if the "Repayment Level" (상환레벨) reaches 1.07. At this point, all collateralized assets are automatically sold to cover the borrowed amount.
15. Eligibility & Borrowing Cap: The service is exclusive to Bithumb members with a "Blue" membership grade or higher (requiring a minimum trading volume of KRW 10,000,000 in the previous month). Maximum borrowing limits are tiered based on membership grade:
    • Blue: KRW 30,000,000
    • Green: KRW 50,000,000
    • Purple: KRW 100,000,000
    • Orange: KRW 300,000,000
    • Black: KRW 500,000,000

Both services operate on the principle of borrowing, selling, buying back at a lower price, and repaying. However, they carry significant risks due to the high volatility of digital assets, warning users of potential forced liquidation and substantial losses.