South Korea’s FSC Orders Crypto Exchanges to Stop Lending Services

Highlights:

• FSC directs South Korean exchanges to suspend crypto lending operations immediately.
• Major exchanges recently expanded borrowing options backed by crypto and fiat deposits.
• South Korea prepares clear lending rules while advancing ETFs, stablecoins, and tax incentives.

On August 19, South Korea’s Financial Services Commission (FSC) announced that it had released administrative instructions for exchanges. The authority instructed them to halt operations that let users borrow using cryptocurrencies or fiat deposits. The order is effective immediately and will stay enforced until the country establishes proper guidelines on crypto lending.

South Korea’s Financial Services Commission (FSC) has ordered local crypto exchanges to suspend lending services effective immediately until official guidelines are introduced. The FSC said such services exist in a legal gray area and have already forced 13% of borrowers into…

— Wu Blockchain (@WuBlockchain) August 19, 2025

South Korean Exchanges Expand Crypto Lending

On July 4, Upbit launched a new service that lets users borrow up to 80% of their Korean won deposits or digital assets. The service allows them to use Tether USDT, Bitcoin, and XRP as collateral. Around the same time, Bithumb also introduced a service that allows users to borrow cryptocurrencies worth up to four times the value of their held assets or Korean won placed as collateral. Following these moves, Bithumb and other exchanges have also started offering similar lending services.

These launches appear linked to the Digital Asset Basic Act, which was officially proposed by the ruling Democratic Party to the National Assembly on June 10. This legislation seeks to empower exchanges to offer lending services as part of a broader effort to regulate and modernize the digital asset industry.

On July 31, the FSC directed exchanges to review their lending services, noting they operate in a legal gray zone and carry significant risks of user losses. Upbit and Bithumb had earlier paused these services last month, though Bithumb later brought them back with tighter conditions in place.

According to the FSC’s report, nearly 27,600 investors borrowed about 1.5 trillion won ($1.1 billion) within the first month of a digital asset company’s lending launch. Due to price swings, 13% of them were forced into liquidation, though the regulator did not disclose the company’s name. The FSC stated that soon after exchanges started USDT lending, heavy sell orders appeared. This sudden activity caused an unusual drop in the stablecoin’s price and led to market instability.

South Korea Targets Clear Lending Rules, Bitcoin ETFs, and Stablecoin Regulations

The FSC said it will make clear rules for digital asset lending. Until the new rules are in place, the regulator will permit users to repay or extend their ongoing lending contracts. In addition, it warned that exchanges ignoring the administrative guidance will face on-site inspections. 

The lending freeze comes as South Korea plans bigger changes in its crypto market. The FSC is making a roadmap to approve the first spot Bitcoin ETFs by 2025. This fulfills President Lee Jae Myung’s promise to lift the ban on such products. In addition, President Lee Jae Myung’s administration is considering launching a stablecoin tied to the Korean won. The country is also preparing a new law aimed at setting the first official framework for stablecoins. The Financial Services Commission intends to present this bill to the National Assembly in October.

🚨BREAKING 🚨

SOUTH KOREA'S PASSES A BILL TO
POSTPONE TAX ON CRYPTO-ASSET
GAINS BY 2 MORE YEARS UNTIL 2027

THIS IS GIGA BULLISH 🚀 pic.twitter.com/tpdKq8Jojk

— Ash Crypto (@Ashcryptoreal) December 10, 2024