South Korea Orders Exchanges to Halt Crypto Lending After $1.1B Boom

South Korea’s top financial regulator has ordered local exchanges to suspend their fast-growing crypto lending services, citing legal uncertainty and mounting risks for retail investors.

FSC pushes pause on lending

The Financial Services Commission (FSC) confirmed Tuesday that it had issued formal guidance to all licensed digital asset platforms to halt lending operations until a clear regulatory framework is in place. The move follows the explosive growth of exchange-backed lending products, which had quickly attracted tens of thousands of users in July.

The lending services, rolled out by major platforms including Upbit and Bithumb, allowed customers to borrow against their deposits in Korean won or cryptocurrencies such as Tether (USDT), Bitcoin (BTC), and XRP. Upbit offered loans worth up to 80% of collateral value, while Bithumb extended up to four times the amount.

Other exchanges introduced similar offerings, positioning the products as a step toward institutional-grade finance. Industry observers noted the launches were timed alongside the ruling party’s proposal for a Digital Asset Basic Act, which could eventually provide legal cover for exchange-run lending.

Investor risks and liquidations

But the rapid adoption has alarmed regulators. According to the FSC, roughly 27,600 investors borrowed 1.5 trillion won ($1.1 billion) in just the first month. Sharp market swings left about 13% of users facing forced liquidations, highlighting the potential for heavy retail losses.

The FSC also reported unusual trading activity tied to lending. Soon after USDT lending began, local markets saw a surge of sell orders that temporarily disrupted the stablecoin’s peg. Officials warned that further unchecked growth of these products could destabilize both digital asset markets and broader financial stability.

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Exchanges already pulled back once

This is not the first regulatory clash over lending. In late July, the FSC instructed exchanges to reassess the legality of their services, which the agency described as operating in a “gray zone.” Upbit and Bithumb briefly suspended lending at that time, with Bithumb later resuming under stricter terms.

Tuesday’s order, however, applies across the board – forcing all platforms to halt until lawmakers finalize comprehensive rules.

Policy direction ahead

For now, the regulator is signaling caution. By pausing lending services, the FSC aims to buy time to craft a standardized framework that could define which assets may be used as collateral and how liquidation risks should be managed.
Observers expect the issue to feature heavily in debates around the Digital Asset Basic Act, seen as the first major attempt to fully integrate crypto activity into South Korea’s financial system.

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