South Korea’s Financial Services Commission (FSC) has taken a decisive step to halt the introduction of new cryptocurrency lending products by exchanges, citing the escalating risks associated with market leverage. This announcement comes on the heels of a recent incident involving Bithumb, where over 27,000 customers accessed lending services in June, with a staggering 13% facing liquidation due to adverse collateral value fluctuations. As explored in our recent coverage of Bithumb halving crypto lending leverage, the exchange has responded by slashing loan limits by 80% to mitigate these risks.
Regulatory Clampdown on Crypto Lending
The FSC’s move underscores a broader concern that leverage in the crypto markets is spiraling out of control. According to a report by Galaxy Digital, the second quarter of 2025 saw crypto-collateralized loans soar by 27%, reaching $53.1 billion—the highest since early 2022. This surge in leverage, combined with a drastic $1 billion liquidation wave last week triggered by bitcoin’s drop from $124,000 to $118,000, has spotlighted the volatile nature of these markets.
The FSC’s administrative guidance permits existing loans to continue but halts new lending services until formal guidelines are established. Should platforms defy this directive, they face potential on-site inspections and further supervisory actions. The concern is not merely theoretical; analysts have noted signs of stress in the system, such as DeFi liquidity crunches and ETH staking exit queues.
Diverging Opinions on the Approach
While the FSC’s actions aim to stabilize the market, not everyone is on board with the abrupt suspension of new lending products. Bradley Park, an analyst at DNTV Research, suggests that the focus should be on enhancing user interfaces, risk disclosures, and loan-to-value (LTV) controls rather than a complete shutdown. Park argues, “The rational approach is to upgrade UI/UX, risk disclosures, and LTV controls to manage exposure safely,” emphasizing the need to manage risks without stifling innovation.
Park points to the negative kimchi premium—where cryptocurrencies trade at higher prices on Korean exchanges than elsewhere—as a potential underlying concern for regulators. He also highlights the lack of transparency from exchanges like Upbit, which does not disclose its lending activity unlike Bithumb. This opacity, Park suggests, complicates regulatory oversight and could be a driving factor behind the FSC’s blanket suspension. For a deeper dive into the regulatory implications, see our coverage of Jeju City’s targeting of crypto holdings of alleged tax dodgers.
Market Implications and Future Outlook
Korea’s crackdown on crypto lending arrives amid a global resurgence of leverage reminiscent of the last bull market. The implications of this move are significant, with potential ripple effects across the crypto ecosystem. The FSC appears committed to establishing a framework that balances innovation with market stability, but the path forward is fraught with challenges.
As the market grapples with these regulatory changes, questions remain about the long-term impact on Korea’s crypto landscape and whether similar measures might be adopted elsewhere. The focus now shifts to the development of robust lending guidelines expected later this year, which could shape the future of crypto lending in Korea and beyond.
The road ahead is uncertain, and as Park puts it, “Until these structural issues are addressed, reopening may take time.” The priority, he argues, should be understanding the mechanisms at play and adopting a data-driven approach, rather than imposing blanket restrictions—a sentiment that resonates with many in the crypto community.
Source
This article is based on: South Korea Tells Crypto Firms to Stop Launching New Lending Products as Leverage Risk Builds
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
