South Korea’s Financial Services Commission (FSC) has issued a directive ordering all domestic cryptocurrency exchanges to immediately suspend new crypto lending services, citing significant risks to investors and market stability. The move, effective as of Tuesday, August 19, 2025, comes in response to a surge in lending activity that led to substantial investor losses and market disruptions. The suspension will remain in place until the FSC establishes comprehensive regulatory guidelines for crypto lending.
The FSC’s decision follows a rapid rise in crypto lending programs, particularly on major exchanges like Upbit and Bithumb, which introduced services allowing users to borrow against their Korean won deposits or digital assets such as Bitcoin, XRP, and Tether (USDT). Upbit launched a program in July 2025 enabling borrowing up to 80% of deposit values, while Bithumb offered loans up to four times the collateral value.
These services attracted approximately 27,600 investors who borrowed 1.5 trillion won ($1.1 billion) in just one month. However, 13% of these borrowers, some 3,635 persons, faced forced liquidations due to sharp market volatility, raising concerns for regulators.
The FSC also highlighted market distortions caused by USDT-based lending, noting that a surge in sell orders led to significant price drops for the stablecoin on local platforms, further destabilizing the market. The regulator emphasized that crypto lending currently operates in a “legal gray area,” posing risks of fraud and user losses without clear oversight. To address this, the FSC and the Financial Supervisory Service (FSS) formed a joint task force on July 31, 2025, to develop guidelines covering leverage limits, user eligibility, and risk disclosures.
While new lending services are halted, existing contracts can still be repaid or extended. Exchanges that fail to comply with the directive face on-site inspections and other supervisory actions. The FSC has promised to “move swiftly” to finalize a regulatory framework, aiming to balance innovation with investor protection.
This crackdown comes due to South Korea’s broader shift toward a more crypto-friendly regulatory environment under President Lee Jae Myung. The administration has 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. However, the FSC’s latest action underscores its priority to curb high-risk practices that could expose retail investors to sudden losses.
Coincu research suggests the ban could drive investors to foreign exchanges or boost the profile of regulatory-compliant platforms, potentially increasing short-term market volatility. Meanwhile, DNTV Research’s Bradley Park argues that improving safeguards, such as better risk disclosures and loan-to-value controls, would be more effective than a blanket suspension. Park also noted transparency issues, pointing out that while Bithumb discloses lending activity, Upbit does not, complicating systemic risk assessments.
