Korea Slams the Brakes on Crypto Lending: FSC Freezes New Loans After $1.1 B Surge

Starting 19 August 2025, South Korea's Financial Services Commission has commanded all local exchanges to stop the introduction of any new crypto- or fiat-backed lending products. Existing loan contracts may run their course or be extended, but no fresh lending activity can begin until a formal rulebook is in place. Before systematic hazards get out of hand, the emergency measure seeks to fill a legislative vacuum about crypto leverage.

Market leaders Upbit and Bithumb revealed their aggressive lending programs in July, letting customers borrow up to 80% of holdings (or even 4x collateral) against Bitcoin, XRP, USDT, and other coins, therefore triggering an explosion. In just one month, 27,600 consumers tapped these items for almost ₩1.5 trillion ($1.1 billion) of volume, and 13% of borrowers were aggressively liquidated amid price swings. The wave of margin calls highlighted consumer-protection holes in an industry devoid of deposit insurance, capital cushions, or explicit disclosure regulations.

Freezing fresh loans sends the FSC notice that banking-like returns can no longer exist in a gray area. Draft rules now under development will probably limit leverage, restrict eligibility, and enforce transparency and risk-management standards. Exchanges that ignore the suspension face on-site inspections and enforcement actions, highlighting regulators’ commitment to protect retail investors and stabilize the quickly expanding Korean crypto market.