Korea Cracks Down: Local Crypto Exchanges Forced to Halt Lending Services in Regulatory Blitz

South Korean regulators just dropped the hammer—local crypto exchanges are getting their lending wings clipped. No more yield farming through domestic platforms as the Financial Services Authority tightens its grip.

The New Rules

Forget about earning passive crypto income through Korean exchanges. The FSA's latest move slams the brakes on lending services, citing investor protection concerns and systemic risk. They're not playing around with unregulated financial products anymore.

Market Fallout

Trading volumes took an immediate hit as yield hunters scrambled. Local platforms are bleeding users while international competitors quietly benefit from the regulatory arbitrage—because nothing says 'financial innovation' like driving business offshore.

Investors left holding empty yield bags while traditional banks smirk from the sidelines. Sometimes the most profitable trade is watching regulators protect you from making money.

Although Crypto Lending Was Successful

Major South Korean crypto exchanges, including Bithumb and Upbit, launched the services on the 5th of last month. The exchanges’ new business was booming even in the early phase, with 27,600 users utilizing 1.5 trillion KRW worth of lending services in just one month.

Before this service, local traders on domestic exchanges lacked a proper hedge against falling crypto prices. However, with this product, which has the characteristics of a derivative, users could take out a crypto loan to profit when they expected prices to fall.

Recently, Korean crypto exchanges began offering crypto lending services with crypto or fiat as collateral. Regulators warned that users may suffer losses from these services.

The Korean Government is Concerned About Consumer Protection

Financial authorities raised concerns that 13% of the service’s users experienced forced liquidation. They argued this happened because those crypto lending services lacked sufficient consumer protection measures.

Authorities also explained that, following the launch of USDT lending services, the volume of Tether sell-offs surged, causing the Tether price to decline unusually. This resembles a reverse-Kimchi Premium, unlike the usual premium where Bitcoin or Ethereum trade higher in Korea.

A financial authority official stated, “If new businesses continue to operate without appropriate user protection measures, there is a risk that user losses will accumulate before guidelines are established. New businesses seeking to enter the market also request clear guidelines for predictability.”

Yet, among the crypto communities, there are voices that the government’s action cared too little about crypto’s volatile nature. Critics also say that Kimchi Premium stopped after derivatives became possible, so it is right to say that the government should lift the ban on such services.

The financial authorities plan to conduct on-site inspections of businesses if new operations continue after administrative guidance and user losses are anticipated.