South Korea Halts New Crypto Lending Over Market Risks

South Korea has ordered crypto exchanges to suspend new lending products after thousands of users suffered liquidations, putting a spotlight on the risks tied to leveraged trading.

The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) confirmed that exchanges were instructed to pause the launch of additional lending services until clear rules are introduced. Existing contracts, such as repayment schedules or extensions, will continue to operate. Officials said they are drafting new guidelines that will set limits on leverage, define who can access these services, and require stronger risk disclosures.

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If you were wondering why cryptocurrency is selling off across the board, it’s because of South Koreans liquidating bad leveraged positions and jeeting out.

Lending services paused for the entire country and not expected to resume until September or October. pic.twitter.com/lcJoae1lkd

— Jared Howe (@SirJaredofHowe) August 19, 2025

The decision comes after Bithumb and other exchanges drew tens of thousands of customers into lending programs earlier this summer. In one case, more than 27,000 users borrowed against crypto holdings, and roughly 13 percent of them were forced into liquidation when prices turned against them. Regulators also pointed to unusual market moves linked to Tether-based lending services, where large volumes briefly pressured USDT prices.

Crypto lending has been a blind spot in South Korea’s rulebook. The country has introduced Anti-Money Laundering measures and a Virtual Asset User Protection Act that penalizes fraud and mishandling of deposits. Still, lending products have remained outside a formal licensing regime. This lack of clarity has allowed exchanges to market services that carry hidden risks for retail traders.

The pause reflects a broader global concern over leverage in digital asset markets. Data from Galaxy Digital shows that the value of outstanding crypto-backed loans has reached record highs this quarter, while forced liquidations across both centralized and decentralized platforms average hundreds of millions of dollars per day.

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For now, exchanges in South Korea must halt the expansion of lending products. At the same time, regulators work on a framework that could set a precedent for how other Asian markets approach crypto credit. Investors are left waiting to see whether the new rules will make these services safer or limit them altogether.