South Korea Cracks Down: Crypto Firms Ordered to Halt Risky Lending Products Amid Leverage Surge

South Korean regulators just dropped the hammer—crypto platforms are now banned from launching new high-risk lending products. The move comes as leverage piles up in the market, threatening to turn DeFi's 'wild west' into a systemic liability.

Why now? The Financial Services Commission (FSA) isn't waiting for a meltdown. With yield-hungry investors piling into leveraged products, Seoul is preemptively pulling the plug before the house of cards collapses. Classic finance would call this 'prudence'—crypto natives will scream 'overreach.'

The irony? Traditional banks still peddle leveraged ETFs with triple the risk. But when crypto does it, suddenly everyone’s a risk management purist.

Park said that transparency gaps also complicate oversight: Bithumb discloses the scale of its lending activity, but Upbit, the country’s largest exchange, does not. That opacity could make it harder for regulators to judge systemic risks and may be a key factor behind the blanket suspension.

“Until these structural issues are addressed, reopening may take time; priority should be understanding the mechanism and adopting a data-driven design, rather than blanket restrictions,” he concluded.