South Korea’s Financial Services Commission (FSC) has directed domestic digital asset exchanges to pause their crypto lending operations. The move comes as regulators work to establish formal guidelines for crypto-backed lending, aiming to protect investors and reduce market risks.
South Korea’s financial watchdog announced today that local cryptocurrency exchanges must temporarily suspend all crypto lending services starting Tuesday. The directive is part of an effort to create a clear regulatory framework for digital asset lending, which remains largely unregulated.
The FSC’s administrative guidance follows a wave of new lending services introduced by major exchanges. On July 4, 2025, Upbit launched a service allowing users to borrow up to 80% of their Korean won deposits or digital assets against Tether (USDT), Bitcoin (BTC), and XRP. Shortly afterward, Bithumb rolled out a platform enabling users to borrow cryptocurrencies worth up to four times the value of their assets or Korean won used as collateral. Several smaller exchanges also implemented similar services.
These launches appear influenced by the recently proposed Digital Asset Basic Act from South Korea’s ruling party, which seeks to formally allow exchanges to provide lending services.
Risks Highlighted by the FSC
The FSC previously warned exchanges on July 31 to reassess their lending operations, citing a legal gray area and the high risk of investor losses. Upbit and Bithumb had already suspended lending services once last month, although Bithumb later resumed operations under stricter terms.
According to the FSC, approximately 27,600 investors borrowed around 1.5 trillion won ($1.1 billion) during the first month after lending services were introduced by a digital asset firm. Price volatility forced 13% of these users into liquidation. The regulator did not disclose the name of the company involved.
The FSC also noted that shortly after USDT lending services were launched, a surge in sell orders caused an unusual drop in the stablecoin’s price on these exchanges, triggering market disruptions.
Guidelines and Regulatory Clarity Ahead
The FSC confirmed it will quickly develop formal guidelines for crypto lending to safeguard investors and integrate leveraged lending services into South Korea’s broader crypto market. Until the guidelines are finalized, the regulator will allow repayments and maturity extensions for existing lending contracts. Exchanges that fail to comply with the temporary suspension may face on-site inspections and further scrutiny.
This regulatory shift reflects South Korea’s growing openness to digital assets, mirroring pro-crypto trends seen in the United States. Authorities are gradually easing restrictions on institutional crypto trading and preparing to approve the country’s first spot crypto exchange-traded funds (ETFs). The administration under President Lee Jae Myung is also supporting the development of a local currency-pegged stablecoin market.
