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- South Korea halts crypto lending amid rising market risks.
- Major exchanges like Upbit and Bithumb face temporary shutdown.
- Regulatory concerns spark pause in digital asset lending services.
South Korea’s Financial Services Commission (FSC) has instructed local digital asset exchanges to suspend their cryptocurrency lending services. The suspension will take effect starting Tuesday as the government works on establishing clearer guidelines for crypto lending. This ruling is a major move towards controlling the fast-expanding area of digital asset lending.
The step follows the launch of crypto lending platforms by exchanges like Upbit and Bithumb. Upbit launched a service enabling user to borrow up to 80 percent of their assets or Korean won deposits. The loan might be borrowed against Tether USDT, Bitcoin, or XRP as a security.
Bithumb, however, offered its users the possibility to borrow up to four times the amount of their held assets or won collateralized. The introduction of these services followed the South Korean ruling party’s proposal of the Digital Asset Basic Act, which is meant to give the crypto lending activity legal support.
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FSC Highlights Risks and Takes Action Against Crypto Lending Services
However, the FSC has expressed concerns over the risks associated with crypto lending services. The commission noted that these services are in a legal gray area, which makes the users susceptible to financial loss.
During the first month of such services’ introduction, about 27,600 investors took out loans of about 1.5 trillion won ($1.1 billion). Unfortunately, 13 percent of these investors had to sell their investments to pay their debts because of unstable market conditions.
Moreover, the launch of USDT lending services introduced a large number of sell orders that resulted in an abnormal decrease in the price of the stablecoin. Such a market upheaval prompted the FSC to announce that it would pause all crypto lending transactions.
The regulatory action will avoid further market volatility and save retail investors from massive losses. After new regulations are established, exchanges will be obliged to observe more rigorous regulations. The FSC’s intervention demonstrates the dilemma between innovation and regulation of cryptocurrency in an industry that is developing rapidly.
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