South Korea Suspends Crypto Lending Amid $1.1B Borrowing and 13% Liquidation Risk

South Korea’s Financial Services Commission (FSC) has suspended all cryptocurrency lending services on domestic exchanges, effective August 19, 2025. The decision was driven by concerns over investor losses and market instability. In the first month following the launch of lending programs by major exchanges, over 27,600 retail investors borrowed approximately 1.5 trillion won ($1.1 billion). Of these, 13% faced forced liquidation due to sharp price swings in volatile crypto markets [1].

The FSC has instructed exchanges such as Upbit and Bithumb to halt operations that allow users to borrow against their digital asset holdings or Korean won deposits. These platforms had enabled high loan-to-value ratios—such as borrowing up to four times the value of a user’s holdings—rapidly attracting speculative participation. However, the unregulated nature of the service led to significant market distortions, particularly in stablecoin trading, where a surge in sell orders caused price deviations on Korean platforms [2].

Under the new directive, existing lending contracts can still be repaid or extended, but no new loans will be permitted. The FSC warned that non-compliance could lead to on-site inspections and penalties. The suspension is intended to be temporary, pending the development of a regulatory framework that integrates crypto lending into the broader financial system while safeguarding retail investors from excessive risk [3].

This move reflects South Korea’s broader regulatory approach under President Lee Jae Myung, which seeks to balance fostering innovation in digital assets with ensuring financial stability. Recent initiatives include easing institutional trading restrictions and preparing for the launch of spot crypto ETFs. However, the swift shutdown of lending services underscores the government’s caution toward high-risk practices that expose retail investors to sudden losses [4].

The FSC’s decision highlights the volatile nature of crypto markets and the potential for leveraged lending to amplify losses. With no clear legal framework in place, regulators acted preemptively to mitigate growing risks. The outcome of this pause will likely determine whether such services can be reintroduced in a more controlled and secure manner [5].

South Korea’s actions emphasize the need for structured regulation in the fast-evolving digital asset landscape. As markets continue to develop, the country’s approach may serve as a model for balancing innovation with investor protection [6].

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[1] South Korea Halts All Crypto Lending, Cites Investor Risk, [https://coinedition.com/south-korea-halts-crypto-lending-investor-risk/](https://coinedition.com/south-korea-halts-crypto-lending-investor-risk/)

[2] South Korea Suspends Crypto Lending Services After $1.1B in Borrowing, [https://www.blockhead.co/2025/08/19/south-korea-suspends-crypto-lending-services-after-1-1-billion-in-borrowing-triggers-market-disruption/](https://www.blockhead.co/2025/08/19/south-korea-suspends-crypto-lending-services-after-1-1-billion-in-borrowing-triggers-market-disruption/)

[3] South Korea Suspends Crypto Lending Till Clear Guidelines, [https://thecryptobasic.com/2025/08/19/south-korea-suspends-crypto-lending-till-clear-guidelines/](https://thecryptobasic.com/2025/08/19/south-korea-suspends-crypto-lending-till-clear-guidelines/)

[5] South Korea Orders Crypto Exchanges to Halt Lending..., [https://cryptonews.com/news/south-korea-orders-crypto-exchanges-to-halt-lending-services/](https://cryptonews.com/news/south-korea-orders-crypto-exchanges-to-halt-lending-services/)