Financial Regulator in South Korea Temporarily Halts Crypto Lending Services: A Look at the Reasons Behind the Decision
Boom and Pause in South Korea's Crypto Lending Market
South Korea's crypto lending market experienced a significant surge in July 2025, reaching approximately $1.1 billion (1.5 trillion won) in loans issued within a single month. This rapid growth, primarily driven by major exchanges like Upbit and Bithumb, saw about 27,600 investors participating in crypto-backed lending[1][4].
The lending surge was marked by high-leverage loans, with Upbit allowing loans up to 80% of asset holdings and Bithumb extending loans worth up to four times users’ deposits[1][2][5]. However, this growth rate was also accompanied by substantial risks, as lending activity boomed sharply in mid-2025, triggering liquidations for about 13% of borrowers due to volatile crypto prices shifting collateral values[1][3].
In response to these risks, South Korea’s Financial Services Commission (FSC) took regulatory action in August 2025 by ordering an immediate halt to new crypto lending services and suspending ongoing lending on domestic exchanges to mitigate investor risk and market instability[1][3][4][5]. This regulatory intervention came after a 27% quarterly increase in crypto-backed loans during Q2 2025 across the market, reaching over $53 billion globally, highlighting a broader trend of rising leveraging in crypto lending[3].
While the specific digital asset firm and the company offering USDT lending were not identified in the release, the FSC is developing detailed guidelines expected to include leverage limits, user eligibility, and risk disclosures, aiming to regulate and stabilize this market segment before allowing lending services to resume under tighter rules[2][4].
Despite the regulatory crackdown, South Korea's stance on crypto has shifted to a more open and pro-crypto approach. President Lee Jae-Myung, who has recently taken office, has vowed to permit crypto assets backed by the Korean won and push for crypto-backed ETFs[6]. This pro-crypto approach mirrors that of the United States under former President Trump.
The FSC has also announced that borrowers will be allowed to extend their loan terms or make repayments on current lending contracts before the new rules take effect, providing some relief to the affected investors[7]. However, the exact details of these extensions or repayment terms have not been disclosed.
In summary, South Korea's crypto lending market experienced a boom in July 2025, followed by a pause due to high leverage risks, legal uncertainty, and regulatory crackdown. The FSC is working on guidelines to regulate this market segment and allow lending services to resume under tighter rules, while President Lee Jae-Myung has expressed a pro-crypto approach for the country.
| Metric | Amount/Detail | |-------------------------------|------------------------------------------| | July 2025 loan volume (month) | $1.1 billion (1.5 trillion won) | | Number of borrowers in July | ~27,600 investors | | Borrower liquidation rate | 13% forced liquidations | | Lending leverage offered | Up to 80% of assets (Upbit), 4x collateral (Bithumb) | | Regulatory action | Suspension of all crypto lending from August 2025 | | Market growth trend | Rapid growth in mid-2021, large surge leading to $1.1B in a month |
[1] CoinDesk. (2025, August 10). South Korea Halts Crypto Lending Amid Volatility Concerns. Retrieved from https://www.coindesk.com/business/2025/08/10/south-korea-halts-crypto-lending-amid-volatility-concerns/
[2] ZDNet. (2025, August 12). South Korea's financial regulator to issue new rules for crypto lending. Retrieved from https://www.zdnet.com/article/south-koreas-financial-regulator-to-issue-new-rules-for-crypto-lending/
[3] Reuters. (2025, August 13). South Korea's financial regulator halts crypto lending to stem market volatility. Retrieved from https://www.reuters.com/business/finance/south-koreas-financial-regulator-halts-crypto-lending-stem-market-volatility-2025-08-13/
[4] Bloomberg. (2025, August 14). South Korea's Financial Services Commission to Tighten Crypto Lending Rules. Retrieved from https://www.bloomberg.com/news/articles/2025-08-14/south-korea-s-financial-services-commission-to-tighten-crypto-lending-rules
[5] The Block. (2025, August 15). South Korea's FSC to introduce new rules for crypto lending. Retrieved from https://www.theblockcrypto.com/linked/114665/south-koreas-fsc-to-introduce-new-rules-for-crypto-lending
[6] Yonhap News Agency. (2025, August 16). South Korea's new president vows to push for crypto assets backed by won. Retrieved from https://en.yna.co.kr/view/AEN20250816006300325
[7] The Korea Times. (2025, August 17). South Korea's FSC to allow extensions for crypto lending contracts. Retrieved from https://www.koreatimes.co.kr/www/news/biz/2025/08/174_281543.html
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