South Korea Halts Crypto Lending

The Financial Services Commission (FSC) of South Korea has mandated domestic cryptocurrency exchanges to pause their credit services effective this Tuesday. This decision seeks to curb high user losses and ensure market stability, anticipating the establishment of a new regulatory framework. Exchanges failing to comply face imminent on-site inspections.

What Provoked the Suspension?

The FSC’s notice highlighted credit offerings by major players like Upbit and Bithumb. Starting July 4, 2025, Upbit allowed users to borrow up to 80% of their assets using cryptocurrency as collateral, including USDT and Bitcoin. Bithumb’s offerings were even more aggressive, enabling users to borrow up to four times their collateral. This quickly led to a burgeoning credit ecosystem across the crypto space.

Are New Guidelines on the Horizon?

Yes, the FSC is working towards new credit guidelines to shield investors and streamline the market. With around 27,600 investors borrowing 1.5 trillion South Korean won (approximately 1.1 billion USD) in just the launch month of a crypto firm’s credit service, the urgency is palpable. A significant 13% suffered forced liquidation due to volatility, with unusual sell pressures impacting stablecoins and causing market disruptions.

Plans are underway to incorporate leveraged credit services within the existing market structure, offering clearer boundaries and directions for the industry. Present contracts will permit both repayment and extension options, while exchanges failing to comply will face stringent inspections.

The FSC’s initiative illustrates a broader approach to refining the regulatory landscape, advocating for transparent practices. Steps are being taken to relax restrictions on institutional cryptocurrency transactions, paving the way for the authorization of cryptocurrency exchange-traded funds (ETFs). Additionally, efforts under President Lee Jae Myung aim to establish a stablecoin market, anchored to the local currency.

“We intend to create a safer environment for all participants, offering clarity and minimizing risks,” stated an FSC spokesperson.

Concrete outcomes of this regulation include:

• Temporary halt on crypto lending services.
• Development of protective guidelines for credit services.
• Greater emphasis on transparency in future policies.
• Potential for less restrictive institutional crypto dealings.
• Movement toward establishing stablecoins tied to local currency.

The regulatory landscape in South Korea is on the brink of significant shifts, signaling a new era for cryptocurrency operations within the country. The FSC’s actions reflect a proactive stance in securing a balanced and safer digital asset market.