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The South Korean Financial Services Commission (FSC) has ordered Korean crypto exchanges to stop lending with immediate effect. This move comes in as the financial authority attempts to control some of the risky lending practices in its digital asset sector.
On 19 August 2025, the financial regulatory body confirmed this news and formally issued administrative guidance requiring crypto exchanges to cease all lending operations involving fiat or crypto collateral.
The guidance will remain in effect till a framework is in place.
SOUTH KOREA BANS CRYPTO LENDING UNTIL NEW RULES
South Korea’s FSC has ordered local exchanges to halt all crypto lending services immediately, citing regulatory uncertainty.
The regulator warned that lending products sit in a legal gray zone, with 13% of borrowers already… https://t.co/WtOCEFHSel pic.twitter.com/JWoN7b22uv
— Crypto Town Hall (@Crypto_TownHall) August 19, 2025
Interestingly, the FSC issued its guidance just days after analysts at Galaxy Digital published their Q2 report, highlighting growing leverage across crypto markets.
Crypto lending witnessed a massive spike starting early July as major exchanges rolled out aggressive lending programs. For instance, Upbit allowed users to borrow up to 80% of their deposit value.
This borrowed amount could be in Korean Won or digital assets backed by collaterals such as Tether (USDT), Bitcoin and XRP.
Competition ensued with Bithumb offering an even more leveraged offering, extending loans worth up to four times a customer’s holdings. Several domestic platforms then joined in, bringing about a rapid expansion of retail lending activity.
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FSC Recently Flagged An Unusual Selloff Of Tether
While the launch of these lending products aligned with the ruling party’s introduction of the Digital Asset Basic Act, a legislative proposal to formalise lending services on crypto exchanges, the FSC ended up issuing a warning last month, stating that these products operate in a grey zone and are extremely risky.
The FSC revealed that approximately 27,600 investors borrowed about 1.5 trillion Won (approximately $1.1Bn) during the first month of a crypto exchange’s lending program rollout.
It further noted that more than 13% of those borrowers were liquidated amid heightened market volatility.
Additionally, the regulatory body flagged an unusual selloff of Tether (USDT), triggered by lending activities, which temporarily disrupted stablecoin prices across South Korean trading platforms.
To counter grey zone lending operations, the FSC stated that it will develop a formal regulatory framework for digital asset lending.
“We will move swiftly to prepare guidelines to protect users and ensure stability in the market,” the agency said. Additionally, it confirmed that investors can still pay off existing loans or extend under current agreements.
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Clampdown On Lending Enforced Within A Broader Industry Pivot To Crypto
The regulatory clampdown on crypto lending is taking place in the backdrop of a broader shift towards digital finance in the country.
Authorities under the new regime are easing restrictions on institutional trading and are currently laying the groundwork for South Korea’s first spot crypto ETF as a nod to the mainstreaming of crypto.
President Lee Jae Myung’s administration is working away at a stablecoin framework pegged to the Korean Won, signalling an assertive stance on crypto despite roadblocks.
Meanwhile, Dunamu, the company behind Upbit, South Korea’s largest crypto exchange, launched a new custody service last week to cater to corporate and institutional clients.
This reflects a growing demand for secure asset storage as regulatory clarity fuels institutional interest in virtual asset investments.
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Key Takeaways
- South Korean FSC has paused all crypto lending operations till formal frameworks are in place
- 26,700 investors borrowed $1.1 Bn, with 13% of them liquidated amid heightened market volatility in one month
- Investors can still pay off existing loans or extend under current agreements
The post South Korean Crypto Exchanges To Stop Lending With Immediate Effect appeared first on 99Bitcoins.
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