South Korea orders exchanges to halt crypto lending services until new guidelines established

The Block

Aug 19, 2025 12:29:54

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South Korea's Financial Services Commission (FSC) has ordered local digital asset exchanges to temporarily suspend their crypto lending operations.

The FSC announced today that it has sent notices to exchanges containing an administrative guidance to halt such services starting Tuesday until the country establishes a proper set of guidelines on crypto lending.

On July 4, 2025, Upbit launched a service enabling users to borrow up to 80% of the value of their Korean won deposits or digital assets against Tether USDT, bitcoin, and XRP. Bithumb also introduced a service allowing users to borrow cryptocurrencies worth up to four times the value of their held assets or Korean won used as collateral. Other exchanges have followed suit.

The launches appear to be in reaction to the recently proposed Digital Asset Basic Act by the country's ruling party, which seeks to allow exchanges to engage in lending services.

On July 31, the FSC told the exchanges to reevaluate their lending operations, saying the services exist in a legal gray area and pose a high risk of user losses. Upbit and Bithumb had already suspended their services once last month — Bithumb later resumed its services under stricter terms.

According to the FSC's release, around 27,600 investors borrowed roughly 1.5 trillion won ($1.1 billion) in the first month after a digital asset company's lending services launched. Due to price fluctuations, 13% of these users were forced to liquidate, the FSC noted. The agency did not name the company's name.

The regulator added that shortly after exchanges introduced USDT lending services, a surge in sell orders led to an unusual drop in the stablecoin's price on these exchanges, causing market disruptions.

Guidelines coming

The financial watchdog said it will promptly develop guidelines for crypto lending services to protect users and provide regulatory clarity, which indicates that the South Korean regulator is willing to formally integrate leveraged lending services into the existing crypto market system.

Prior to implementing the guidelines, the FSC will allow repayments and maturity extensions for existing lending service contracts. Meanwhile, the agency said it will conduct on-site inspections of exchanges that do not comply with the administrative guidance.

In line with pro-crypto movements in the U.S., South Korea has shifted from its previously restrictive stance on crypto to a more open one. Financial authorities are gradually lifting the ban on institutional crypto trading and preparing to approve the country's first set of spot crypto exchange-traded funds. The administration under President Lee Jae Myung is also working to establish a local currency-pegged stablecoin market.

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