South Korea Halts Crypto Lending as Regulators Address Risks

South Korea’s Financial Services Commission (FSC) has ordered digital asset exchanges to halt their crypto lending services immediately, pending the establishment of a regulatory framework [1]. The directive, issued through administrative guidance, requires exchanges to stop new lending activities while allowing existing contracts to be repaid or extended. The move aims to address the legal and operational risks associated with these services, which have operated in a regulatory gray area [1].

The FSC emphasized that the absence of clear rules poses a high risk of investor losses, citing data showing that approximately 27,600 users borrowed around 1.5 trillion won ($1.1 billion) in the first month after a major exchange introduced lending services. Of these, 13% were forced into liquidation due to market volatility [1]. The regulator also noted that the introduction of USDT lending services led to a sharp drop in the stablecoin’s price on local exchanges, highlighting concerns over market stability [1].

The recent push by the ruling party to allow exchanges to engage in lending services through the proposed Digital Asset Basic Act had prompted rapid adoption by platforms such as Upbit and Bithumb. Both exchanges launched lending services in early July 2025, offering users the ability to borrow against their holdings. However, after initial suspensions last month, the FSC has now issued a more permanent halt until regulations are finalized [1].

The FSC’s decision aligns with South Korea’s broader shift toward a more open regulatory stance on cryptocurrencies. In recent months, the country has moved to lift restrictions on institutional trading and is preparing to approve the first spot crypto exchange-traded funds (ETFs). At the same time, the government is exploring the development of a stablecoin market pegged to the Korean won [1].

Despite the temporary suspension of lending services, the FSC has indicated that it plans to develop formal guidelines to regulate the space. These would not only provide clarity for exchanges but also ensure investor protection. Until then, the regulator has warned that it will conduct on-site inspections for non-compliance [1].

The move reflects a growing global trend of increased oversight in the crypto sector, particularly as participation continues to rise. South Korea’s swift regulatory action may serve as a model for other jurisdictions seeking to manage the risks of crypto lending while supporting innovation [2].

Source:

[1] South Korea orders exchanges to halt crypto lending services until new guidelines established (https://www.coinlive.com/en/news-flash/873914)

[2] Why is the Crypto Market Down Today? Bitcoin and ... (https://m.fastbull.com/news-detail/why-is-the-crypto-market-down-today-bitcoin-news_6100_0_2025_3_8173_3/6100_BNB-USDT)