South Korean Crypto asset Exchanges To Cease Lending Services Immediately

The Financial Services Commission (FSC) of South Korea has instructed local digital currency exchanges to immediately cease all lending activities. This decision is part of the regulatory body’s efforts to manage the precarious lending behaviors within the digital asset space.

On August 19, 2025, the financial watchdog announced this directive and officially provided administrative guidance mandating that crypto exchanges halt all lending functions involving either fiat or cryptocurrency as collateral.

This directive will stay active until a regulatory framework is established.

SOUTH KOREA BANS CRYPTO LENDING UNTIL NEW RULES

Local exchanges in South Korea must immediately stop all crypto lending services, according to the FSC, due to regulatory uncertainties.

The regulatory authority cautioned that lending products exist within a legal grey area, with 13% of borrowers already experiencing… https://t.co/WtOCEFHSel pic.twitter.com/JWoN7b22uv

— Crypto Town Hall (@Crypto_TownHall) August 19, 2025

Notably, the FSC issued its guidance shortly after analysts from Galaxy Digital released their Q2 analysis, which pointed out the rising leverage within crypto markets.

Crypto lending experienced a significant surge beginning in early July as leading exchanges introduced aggressive lending schemes. For example, Upbit allowed users to borrow up to 80% of their deposit value.

The funds borrowed could be in either Korean Won or cryptocurrencies backed by collateral such as Tether (USDT), Bitcoin, and XRP.

Competition intensified with Bithumb offering a more leveraged option, providing loans up to four times a customer’s holdings. Several local platforms quickly joined the fray, leading to explosive growth in retail lending activities.

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FSC Recently Highlighted An Unusual Tether Selloff

While the initiation of these lending products coincided with the ruling party’s introduction of the Digital Asset Basic Act, aimed at regulating lending services on crypto exchanges, the FSC subsequently issued a warning last month declaring that these products function within a grey zone and carry substantial risks.

The FSC disclosed that nearly 27,600 investors borrowed about 1.5 trillion Won (approximately $1.1 billion) in the initial month following a crypto exchange’s lending program launch.

Moreover, it reported that over 13% of those borrowers faced liquidation due to increased market market fluctuation.

Additionally, the regulatory authority noted an unusual selloff of Tether (USDT), prompted by lending activities, which momentarily disrupted stablecoin values across South Korean trading venues.

To address the grey zone lending practices, the FSC announced plans to formulate a formal regulatory framework for digital asset lending.

“We will act promptly to establish guidelines to safeguard users and guarantee trading market stability,” the agency remarked. It also confirmed that investors are permitted to pay off existing loans or extend under current agreements.

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Crackdown On Lending Implemented Amidst Broader Industry Turn Towards Crypto

The regulatory crackdown on crypto lending occurs within the context of a larger transition towards digital finance in the country.

Authorities under the new regime are relaxing constraints on institutional trading and are in the process of setting the stage for South Korea’s first spot crypto ETF, marking a step towards the mainstream acceptance of crypto.

President Lee Jae Myung’s administration is formulating a stablecoin structure linked to the Korean Won, demonstrating a proactive approach to crypto despite existing challenges.

In the meantime, Dunamu, the operator of Upbit, South Korea’s largest crypto trading network, introduced a new custody solution last week aimed at corporate and institutional clients.

This move reflects a growing need for secure asset custody as regulatory clarity enhances institutional interest in virtual asset investments.

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The article South Korean Crypto Exchanges To Halt Lending With Immediate Effect was first published on 99Bitcoins.