South Korea’s top financial regulator, the Financial Services Commission (FSC), has instructed local cryptocurrency exchanges to suspend their lending services temporarily until there are clear, established guidelines.
Today, the FSC said it has instructed exchanges to stop offering crypto lending from Tuesday until clear rules for these services are created. The regulator said these services are in a legal “gray area” and could put investors at risk.
Recently, major exchanges like Upbit and Bithumb have launched lending products that let users borrow money or crypto against their deposits. For example, Upbit allowed borrowing up to 80% of Korean won deposits, while Bithumb lets users borrow up to four times the value of their assets.
These services gained significant popularity in just one month, with approximately 27,600 people borrowing 1.5 trillion won ($1.1 billion). However, due to price fluctuations, 13% of borrowers were compelled to sell their assets, resulting in losses.
The rush also shook stablecoin markets. The FSC said USDT lending led to a surge of sell orders that pushed stablecoin prices unusually low on Korean exchanges, sparking fears of wider instability. For now, borrowers can repay or extend existing loans, but no new lending is allowed.
South Korea’s Broader Crypto Push
This lending freeze comes as South Korea takes broader steps to reshape its crypto market. The FSC is preparing a roadmap to approve the country’s first spot Bitcoin ETFs by the end of 2025, fulfilling South Korean President Lee Jae Myung’s pledge to lift the ban on such products.
Moreover, under President Lee Jae Myung’s government, South Korea is exploring the creation of a stablecoin linked to the Korean won. The nation is also working on a new law to create the country’s first official rules for stablecoins. The Financial Services Commission (FSC) plans to submit the bill to the National Assembly in October.