South Korea Halts Crypto Lending
South Korea has officially slammed the brakes on crypto lending. The Financial Services Commission (FSC) announced on Tuesday that it has ordered exchanges to suspend new lending products until regulators finish drafting formal guidelines.
The decision comes after thousands of investors suffered forced liquidations, wiping out positions in exchange-run lending programs. According to the FSC, one exchange alone attracted 27,600 users in just a month, generating $1.1 billion in trading volume. But over 3,600 users — 13% of participants — lost their assets through liquidations.
The new restrictions won’t affect existing contracts. Borrowers can still repay loans or extend maturity dates, but no fresh lending products can be launched until rules are finalized.
Drafting New Crypto Lending Regulations
A joint task force of the FSC and the Financial Supervisory Service (FSS) is now drafting regulations covering:
- Leverage limits to curb excessive risk
- Eligibility rules for borrowers
- Mandatory risk disclosures for users
Regulators also pledged on-site inspections and penalties for non-compliant platforms.
Tether Market Concerns
The FSC highlighted unusual market activity tied to lending of Tether (USDT), which spiked selling volumes and briefly distorted stablecoin prices.
Officials warned that unchecked lending could trigger deeper investor losses.
Crypto Lending in a Legal Gray Zone
While South Korea has already enacted strong digital asset laws — including the Virtual Asset User Protection Act in 2023 — crypto lending remains in a regulatory gray zone.
This crackdown marks the first major attempt to bring order to one of crypto’s riskiest frontiers.
