South Korea Drops Hammer: Instant Crypto Lending Ban Shakes Markets

Seoul just flipped the off switch on crypto lending—no phase-out, no grandfathering. The Financial Services Commission (FSA) dropped the bombshell at dawn, catching platforms mid-swap.

Why now? Regulators claim 'systemic risk'—though cynics note it's the same week traditional banks reported record overdraft fees. Coin collateral? Now a no-go. Yield hunters? Back to 0.1% savings accounts.

Market reaction? BTC wobbled 2% before rebounding—traders yawned and bought the dip. DeFi protocols? Already routing through Singapore. The real casualty? Kimchi premium arbitrage plays.

Last line: When banks fear disruption, regulation moves at light speed. When they profit? Cue the 'measured approach.'

South Korean exchanges offered risky leveraged crypto loans

South Korean exchanges picked up activity in 2025, with more retail buyers seeking the hottest coins. Since July, local crypto exchanges like Upbit have allowed significant unregulated lending. Leveraged lending was also the biggest problem, leading to potential liquidations and losses, as well as anomalies when using stablecoins.

Users could borrow against up to 80% of the value of their BTC, XRP, or USDT holdings. Bithumb also offered riskier loans of up to four times the collateral. This risky source of liquidity could lead to unwinding and liquidations in the case of a bear market. The rapid rise of lending services alarmed regulators, who moved in with new compliance requests. 

Since the launch of exchange-based lending, retail borrowed the equivalent of $1.1B in one month, spread across 27,600 accounts. Around 13% of loans were liquidated in price swings. After the new halt comes into force, legacy loans will continue until repaid, but exchanges are banned from new lending. 

Lending may resume once the regulator sets up new guidelines and safety features. South Korea has attempted to build formal crypto regulations, to prepare for spot ETFs. Local banks are also meeting to prepare for eventual stablecoin regulation, as Cryptopolitan recently reported. 

South Korea spreads influence through selected assets

The South Korean market boosts selected coins and tokens. XRP is among the assets with significant legacy representation on South Korean exchanges. Around 13.97% of XRP volumes are against the South Korean loans. Legacy meme tokens and altcoins also depend on South Korean exchanges.

For Pudgy Penguins (PENGU), the share of the Korean Won is up to 18.8%, leading to outsized price rallies. South Korean exchanges remain relatively conservative with their listings, often offering chances for coins and memes to make a return after years on international markets. These exchanges have stricter requirements for liquidity and market longevity before adding assets. 

For blue-chip trading, the Korean won is less relevant, with a small share of BTC and ETH activity. The Korean won premium is also relatively smaller. The introduction of local stablecoins may further displace the fiat currency as a source of liquidity.

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