- South Korea’s FSC has ordered local exchanges to suspend crypto lending services.
- The move follows concerns over investor losses, with 13% of borrowers forced into liquidation in July.
- Around 27,600 investors borrowed 1.5 trillion won ($1.1B) in the first month of lending services.
South Korea’s top financial regulator slammed the brakes on crypto lending. The Financial Services Commission (FSC) has ordered all domestic crypto exchanges to immediately suspend their newly launched lending services, citing major risks to investors.
The Financial Services Commission (FSC) confirmed that it has issued administrative guidance to major exchanges, instructing them to halt operations that allow users to borrow against their Korean won deposits or digital asset holdings.
The order takes immediate effect and will remain in place until the agency finalizes a regulatory framework for crypto lending.
Why the Sudden Halt?
Crypto lending surged in popularity after Upbit and Bithumb, two of the country’s largest exchanges, rolled out programs in July that allowed users to borrow against their crypto holdings. But the rapid growth quickly raised red flags for regulators.
Upbit allowed customers to borrow up to 80% of the value of their deposits using Tether (USDT), Bitcoin, or XRP as collateral, while Bithumb offered loans worth up to four times a user’s holdings. Other platforms quickly followed.
Related: South Korea’s Lotte Group Brings 1M Vouchers to Blockchain with Aptos Integration
Regulators Alarmed
According to the FSC, around 27,600 investors borrowed approximately 1.5 trillion won ($1.1 billion) in the first month after one exchange introduced its program.
Roughly 13% of these users were forced into liquidation due to sharp market swings, highlighting the dangers of leveraged lending in volatile digital asset markets.
The FSC also pointed to distortions in stablecoin trading. Soon after exchanges launched USDT-based lending services, a surge in sell orders caused the stablecoin’s price to deviate sharply on Korean platforms.
What Happens Now?
The suspension is immediate. While existing borrowers will still be able to repay or extend their contracts, no new loans are permitted. The FSC emphasized that exchanges that fail to comply will face on-site inspections and penalties.
The FSC emphasized that the suspension is temporary and that it intends to “move swiftly” to craft clear guidelines for lending services.
The framework will aim to protect users from excessive risk while integrating digital asset lending into the country’s evolving financial system.
South Korea’s “Balancing Act” on Crypto
This move is a classic example of the “balancing act” the current administration is trying to pull off. Under President Lee Jae Myung, authorities have eased restrictions on institutional trading, laid the groundwork for the country’s first spot crypto exchange-traded funds (ETFs), and proposed a stablecoin market pegged to the Korean won.
Related: South Korea to Roll Out New Legislation for Won-Pegged Stablecoins in October
The Myung administration seeks to encourage innovation and investment in digital assets while curbing practices that could leave retail investors exposed to sudden losses.
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Source: https://coinedition.com/south-korea-halts-crypto-lending-investor-risk/