South Korea slaps immediate ban on crypto lending

The South Korean Financial Services Commission (FCS) ordered an immediate halt to all crypto lending on domestic exchanges, effective from August 19. The lending ban aims to protect retail investors from risky practices. 

South Korean exchanges picked up the trend from DeFi protocols, where Aave became the leader and revived the inflow of liquidity. Just days before regulators moved in with a direct halt to lending, Bithumb slashed its leverage by half, only offering 2X collateralized loans. The exchange plans to build an independent lending platform in the future. 

Bithumb voluntarily reduced its lending leverage, according to South Korean media. In August, regulators were already deliberating on the issue of lending regulation, though with no immediate ban. 

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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