Quick Summary:
- South Korea suspends cryptocurrency lending until the regulations are clarified.
- ₩ 1.5 trillion borrowed in a month; 13% forced to liquid
- FSC working on new rules to protect users and stabilize market
South Korea Halts Crypto Lending Due to Lack of Rules
South Korea is hitting pause on crypto lending. The country’s top financial watchdog, the Financial Services Commission (FSC), has told local crypto exchanges to temporarily shut down their lending services until proper rules are put in place.
Why the sudden halt? According to the FSC, crypto lending is operating in a bit of a legal no-man’s-land. Right now, there are no clear protections for users, and the risks are starting to show. As a result, regulators decided to step in and hit the brakes—at least for now.
South Korea Halts Risky Lending Offers on Crypto Exchanges
Things moved fast leading up to this decision. In early July, major exchanges like Upbit rolled out lending features that let users borrow up to 80% of their Korean won or crypto holdings using Bitcoin, XRP, or USDT as collateral.
After a long time, Bithumb raised the bar by allowing users to borrow the value of their property four times. Other exchanges quickly followed.
At first, it looked like a hit.
In just one month, over 27,000 people borrowed ₩1.5 trillion ($1.1 billion) through these services. But there was a catch: about 13% of borrowers ended up getting liquidated due to crypto price drops. That, according to the FSC, is exactly the kind of risk they’re trying to protect users from.
Market Volatility Raises More Red Flags
Things didn’t just go wrong for borrowers. Shortly after USDT lending services launched, massive sell-offs caused the stablecoin’s price to dip unexpectedly on Korean exchanges.
That shook market confidence and caught regulators’ attention. In response, the FSC issued an administrative notice telling exchanges to pause all crypto lending services immediately and review their operations.
At the same time, the regulator made it clear that this isn’t a permanent ban; it’s more like hitting reset. Want to see the official update? Check the FSC website.
What Happens Now? New Crypto Lending Rules Are on the Way
The good news: the government isn’t against crypto lending altogether.
In fact, they’re already working on a proper rulebook to make sure these services can return with more guardrails.
Here’s what the upcoming guidelines are expected to include:
- Legal definitions for crypto lending
- Risk disclosures to protect investors
- Clear terms for borrowing, collateral, and liquidation
In the meantime, users who already have loans can repay or extend them, but no new lending will be allowed. Also, the FSC said it will start doing on-site checks at any exchanges that try to ignore the suspension.
South Korea’s Bigger Crypto Game Plan
Let’s zoom out for a second. This isn’t South Korea cracking down on crypto across the board. If anything, it’s the opposite.
Under President Lee Jae Myung, the country is starting to embrace digital assets more than ever. There are plans to:
- Approve the first spot crypto ETFs
- Let institutions trade crypto legally
- Launch a Korean-won-pegged stablecoin
So yes, South Korea halts crypto lending for now, but the long-term picture is much more optimistic. The government wants to support growth, just in a way that doesn’t put retail users in danger.
