The South Korean Financial Services Commission (FSC) announced today (19th) that domestic cryptocurrency exchanges must fully suspend lending operations from now on until new guidelines are officially introduced.
The South Korean FSC pointed out that it has issued administrative guidance letters to major exchanges, ordering the immediate cessation of all cryptocurrency lending services until South Korea formulates a proper set of cryptocurrency lending guidelines to avoid the market continuing to operate in a regulatory gray area and to reduce the risk of significant losses for investors due to leveraged operations.
Looking back at July 4 of this year, South Korea's largest exchange, Upbit, was the first to launch the 'collateral lending' service, allowing investors to use deposits in Korean won or digital assets (USDT, Bitcoin, Ripple) as collateral, with a maximum borrowing amount of up to 80% of the collateral value. Subsequently, Bithumb also joined the fray, even offering lending options with up to 4 times leverage, and other exchanges followed suit.
The South Korean FSC added that 'a certain cryptocurrency company' attracted over 27,600 investors to participate in its lending service in the first month, with a total lending amount reaching 1.5 trillion won (approximately 1.1 billion USD). However, due to drastic price fluctuations, about 13% of investors ultimately faced forced liquidation, resulting in significant financial losses.
What is even more concerning is that after exchanges successively launched USDT lending services, a large number of sell orders surged within a short period, causing an abnormal drop in USDT prices, impacting market order.
The FSC emphasized that, before the new guidelines are introduced, exchanges are not allowed to add new lending services; as for existing contracts, investors are allowed to repay or extend according to the agreement to avoid an immediate market breakdown.
If any operators refuse to comply with the administrative guidance, regulatory authorities will initiate on-site inspections and may impose penalties.
In fact, this move corresponds to South Korea's overarching direction toward 'regulatory relaxation.' Following the United States' recent active promotion of cryptocurrency-friendly policies, South Korea is also gradually shifting from a previously strict attitude to a cautiously open stance. Financial authorities have begun to lift the ban on institutional investments in crypto assets and are preparing to launch the country's first batch of cryptocurrency spot ETFs.
At the same time, under the leadership of President Lee Jae-myung, the country is actively constructing a 'Korean won stablecoin' market, aiming to establish a localized cryptocurrency financial ecosystem.
"Temporary suspension of operations before new guidelines are released! South Korea's 'cryptocurrency lending services' are completely halted" - this article was first published on (Blockcast).
