South Korea’s financial regulator has ordered a stop to all crypto lending on local exchanges, saying the fast-growing products lack proper rules and pose risks.
The Financial Services Commission (FSC) issued administrative guidance that takes effect immediately and will stay in place until new lending rules are written.
Regulator Moves To Halt Crypto Lending
According to the FSC, exchanges must suspend services that let users borrow against crypto or fiat deposits. Existing loans are not being wiped out; borrowers can still repay or extend under current contracts.
Reports say the order is an administrative step, not a criminal ban, but platforms that ignore it may face on-site inspections from authorities.
South Korea confirms that the only “investment” the U.S. is getting out of them is in the form of high interest rate loans.
Just like Japan. pic.twitter.com/REDeuP8DvC
— Spencer Hakimian (@SpencerHakimian) August 4, 2025
Rapid Uptake And Big Numbers
Based on reports, lending offerings exploded after early July. Upbit launched a program letting customers borrow up to 80% of the value of their deposits, using USDT, Bitcoin and XRP as collateral.
Rival Bithumb offered loans worth up to four times a customer’s holdings, and other local platforms quickly followed.
One company’s first month drew roughly 27,600 investors who borrowed about 1.5 trillion won ($1.1 billion), according to the regulator. Market swings pushed about 13% of those borrowers into liquidation, the FSC added.
Liquidations And Stablecoin Strain
Reports have disclosed an unusual sell-off in USDT tied to the lending push, and that move briefly disturbed stablecoin pricing on some Korean platforms.
Forced liquidations and a sudden rush to sell can magnify losses for ordinary users, which is exactly what alarmed regulators. That mix of heavy borrowing and market stress is what the FSC flagged as a systemic worry.
Exchanges Pivot As Rules Loom
Upbit and Bithumb had already paused lending once in July; Bithumb later resumed under stricter terms before this fresh suspension.
At the same time, industry players are preparing for more regulated business: Dunamu, which runs Upbit, unveiled a custody service that stores assets in cold wallets for corporate and institutional clients.
Reports also point to the ruling party’s Digital Asset Basic Act, a proposal that would formally allow lending services inside exchange operations — but only once rules are set.
Push For Rules While Opening New Doors
Officials say they will move quickly to build a clear rulebook for digital asset lending to protect users and keep markets steady.
South Korea appears to be loosening other curbs: authorities are clearing the way for the country’s first spot crypto ETFs and are working on a won-pegged stablecoin framework.
That shows regulators want to encourage safer forms of crypto access, while trimming riskier retail products.
Featured image from Verdict, chart from TradingView
