Why South Korea Halted Crypto Lending on Upbit & Bithumb

• South Korea’s FSC suspended new crypto lending on exchanges effective August 19, 2025, citing investor safety concerns.
• About 13 percent of 27,000 lending customers faced forced liquidations, exposing systemic risks in leveraged products.
• New crypto lending regulations are expected in early 2026, aiming to align with broader financial safeguards.

South Korea’s Financial Services Commission (FSC) has suspended all new crypto lending activities on local exchanges, effective August 19, 2025. The directive requires major platforms such as Upbit, Bithumb, and Coinone to immediately cease issuing new loans.

While existing loan contracts can continue under their current terms, the FSC stressed that the suspension is a temporary but necessary measure until comprehensive guidelines can be established. The decision marks the strongest intervention yet into South Korea’s crypto lending sector, which has grown sharply over the past two years.

Concerns Over Leverage and Investor Safety

Officials highlighted investor protection as the primary driver for the crackdown. The FSC reported that approximately 13 percent of the 27,000 customers using lending services experienced forced liquidations in recent months, underscoring the systemic risks of these leveraged products.

By halting new lending, the FSC aims to prevent further market instability. Officials pointed to global examples where unregulated crypto lending led to cascading market failures, arguing that stricter oversight is needed to prevent similar outcomes in South Korea.

Impact on Exchanges and Domestic Users

For exchanges, the directive immediately eliminates what had become a profitable revenue stream. Platforms will need to adjust their business models while ensuring users comply with the new rules. The order does not block repayments, allowing current borrowers to settle their obligations without disruption.

Investors who relied on these lending services for leverage or liquidity now face a period of uncertainty. Analysts expect a near-term slowdown in trading volumes on domestic exchanges as the sector adapts to the suspension and traders seek alternatives.

The Path to a Regulated Framework

The FSC indicated that new, comprehensive rules will likely be introduced in early 2026, creating a formal legal structure for digital asset lending. This move is part of a broader regulatory push, with the government also planning to roll out new legislation for Won-pegged stablecoins in October.

The upcoming framework is expected to align with South Korea’s overarching approach to crypto, which prioritizes risk control and investor safety. Until then, the suspension sends a clear message of the government’s intent to reduce market volatility and reinforce financial safeguards.