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South Korea’s Financial Services Commission (FSC) ordered all local cryptocurrency exchanges, including Upbit and Bithumb, to suspend crypto lending services immediately, citing risks to investors and market stability, per CoinDesk and CryptoNews. This SEO-optimized, fact-checked article explores the halt and its implications.
Regulatory Crackdown
The FSC’s directive targets lending programs allowing users to borrow up to 80% of deposits (Upbit) or four times collateral (Bithumb) in assets like Bitcoin, Tether, and XRP. The regulator flagged these as operating in a “legal gray area,” with 13% of 27,600 borrowers facing liquidation in June 2025 due to volatile markets, per Coinpedia. The halt, effective immediately, pauses new loans while allowing repayments or extensions on existing contracts. Non-compliant exchanges face on-site inspections.
Context and Impact
The suspension aligns with South Korea’s push for the Digital Asset Basic Act, set for October 2025, which will regulate stablecoins, token listings, and lending with strict AML/KYC and reserve requirements. Upbit paused its USDT lending on July 28, while Bithumb slashed leverage to 2x, per The Block. The FSC aims to curb $1.1 billion in risky loans issued in July, protecting retail investors amid a 14% crypto portfolio penetration among South Koreans aged 20–50, per Hana Institute.
Industry Response
Exchanges are adapting, with Dunamu (Upbit’s operator) launching a cold wallet custody service for institutional clients. X posts, like @Crypto_Potato, note the halt may drive traders to offshore platforms, though @blockwoods_io sees it fostering long-term trust via clearer rules.
South Korea’s lending ban limits passive income options but prioritizes investor safety. With $272 million lost to crypto scams in 2024, per FBI data, the move signals a maturing market. Investors should monitor compliance updates and explore regulated alternatives as the Digital Asset Basic Act reshapes South Korea’s crypto landscape.
