South Korea freezes crypto lending until new rules are introduced

The Financial Services Commission has ordered exchanges to temporarily freeze crypto lending due to a lack of regulation

South Korea suspends crypto lending on exchanges

19.08.2025 - 09:25

267

3 min

What’s new? South Korea’s financial regulator (FSC) has ordered local crypto exchanges to suspend lending services. The ban will remain in effect until official rules regulating this market are adopted. The agency stated that crypto loans are in a “gray area” of legislation and pose a high risk to investors.

What new measures are being introduced? Exchanges are prohibited from issuing new loans, but are allowed to service existing contracts — to repay and renew them. The FSC also warned of on-site inspections of platforms that violate the instructions.

According to the regulator, in the first month of operation, approximately 27 600 investors borrowed 1,5 trillion Korean won ($1,1 billion). Due to price volatility, 13% of users lost assets through the liquidation of positions.

The regulator noted that the surge in lending caused a sharp increase in USDT sell orders and a drop in the stablecoin’s exchange rate on local exchanges, which caused market disruptions.

Source x.com

The agency promised to quickly prepare guidelines for lending to protect investors and integrate loans into the market system.

The ban was a response to aggressive moves by exchanges. In July, Upbit launched a cryptocurrency-backed lending service, and Bithumb offered loans four times the value of the deposit. These projects accelerated the discussion of a digital asset law that would legalize such services.

South Korea’s largest exchange Upbit faces a $131 billion fine

According to FinCEN, the platform committed over 9 million violations of AML regulations

South Korea is gradually softening its stance on cryptocurrencies. The authorities are lifting restrictions on institutional trading and preparing the first package of spot ETFs. President Lee Jae Myung’s administration is also working on launching a market for stablecoins pegged to the won. In addition, the government plans to provide tax breaks to crypto venture firms: companies will be able to receive a 50% discount on income tax.

Author: