South Korea halts crypto lending services pending new rules

South Korea's Financial Services Commission (FSC) instructed domestic crypto exchanges to suspend the rollout of new lending services effective immediately. Existing loans may run their course, with repayments and maturity extensions allowed until guidelines are in place.

The FSC and Financial Supervisory Service sent formal administrative guidance to virtual asset service providers. The guidance applies to exchanges with existing or planned lending operations but does not affect other exchange services.

Regulators acted after several large platforms launched higher-risk lending models in July 2025. Bithumb offered loans up to four times a customer's holdings. Upbit let users borrow assets up to 80% loan-to-value (LTV), using KRW or crypto as collateral; USDT support was later removed.

Authorities said these offerings raised leverage and short-selling concerns in a legal gray area without sufficient investor protections. Officials cited concerns about the risk of user losses from the lending programs. 

In approximately one month, about 27,600 investors used one exchange's lending product for a total of around 1.5 trillion won, equivalent to roughly $1.1 billion. Approximately 13% of these users faced forced liquidation amid price swings, according to the regulator's summary.

Regulators also identified market distortions linked to the crypto lending services. USDT prices dropped unusually on Korean platforms immediately after the USDT lending services launched, which regulators flagged as a market-order distortion.

Exchanges must allow repayments and maturity extensions on existing contracts under current terms, but cannot initiate new lending activity. The regulator warned it would conduct on-site inspections of platforms that continue launching or marketing new lending businesses despite the guidance.

The FSC indicated that detailed guidelines for digital asset lending will follow the suspension. Earlier this month, officials said those rules would address leverage limits, user eligibility requirements, and risk disclosures for exchange-operated lending services.

Regulators previously said they aim to issue crypto lending guidelines in August, with formal details to follow.