South Korea Cracks Down: Crypto Credit Services Frozen to Protect Investors

Seoul slams the brakes on crypto lending—no more playing with borrowed money in the Wild West of digital assets.

Regulators draw the line: South Korea's Financial Services Commission (FSA) just pulled the plug on crypto credit services, citing 'excessive risk' to retail investors. The move comes as global scrutiny tightens on leveraged crypto trading.

Behind the ban: Authorities spotted alarming patterns—overextended traders, volatile altcoins, and the usual suspects (looking at you, Kimchi Premium). Now banks must freeze all crypto-linked credit lines by August 25.

Market fallout? Probably minimal. Most Korean exchanges already axed margin trading after the 2021 Luna crash. But the symbolism stings—another blow to crypto's 'grown-up finance' aspirations.

Closing jab: Because nothing says 'consumer protection' like banning debt-funded gambling... while leaving traditional stock margin trading untouched. Priorities, right?

The Financial Services Commission (FSC) of South Korea has instructed local cryptocurrency exchanges to temporarily suspend credit services starting Tuesday. This directive comes as the regulatory authority aims to mitigate risks associated with high user losses and maintain market stability until a new regulatory framework is established. The FSC has also noted that on-site inspections will be conducted at exchanges that do not comply with this notification.

ContentsExchanges Ordered to Suspend crypto Credit ServicesCrypto Credit Services on Hold Until New Regulations Established

Exchanges Ordered to Suspend Crypto Credit Services

According to the issued notice, Upbit initiated a service on July 4, 2025, allowing users to borrow up to 80% of their assets using USD deposits or cryptocurrencies as collateral, offering options such as USDT, Bitcoin$114,751, and XRP. Bithumb introduced a product enabling users to borrow up to four times their collateral value in cryptocurrencies. Other crypto exchanges followed suit, quickly leading to the development of a widespread credit ecosystem.

Crypto Credit Services on Hold Until New Regulations Established

On July 31, the FSC called for a reassessment of these products, highlighting the legal ambiguities and high risk of losses for users. According to data shared by the regulatory body, approximately 27,600 investors borrowed a total of 1.5 trillion South Korean won (about 1.1 billion USD) within the first month of a cryptocurrency company launching its credit service. Due to price fluctuations, 13% of these users faced losses through forced liquidation. Additionally, unusual selling pressure was observed on exchanges following the introduction of USDT credits, leading to significant price drops in stablecoins and market disruptions.

The FSC announced its intention to swiftly prepare credit guidelines to protect users and reduce uncertainty. Leveraged cryptocurrency credit services will be integrated into the existing market structure with clear and defined regulations. Until the guidelines come into effect, existing contracts will allow for repayments and extensions. Non-compliant exchanges will be subject to on-site inspections.

The notice also indicated a shift towards more transparent regulations in the country. Financial authorities are preparing to gradually lift restrictions on institutional investors’ cryptocurrency transactions and are working on approving the first spot cryptocurrency exchange-traded funds (ETFs). Under President Lee Jae Myung’s administration, preparations for establishing a stablecoin market indexed to the local currency are also underway.

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