South Korea suspends cryptocurrency lending pending new rules
- South Korea suspends cryptocurrency lending services
- FSC highlights legal risks and losses for investors
- Regulatory guidelines for cryptocurrencies will be implemented soon
The Financial Services Commission of South Korea (FSC) ordered that the country's major exchanges temporarily suspend their cryptocurrency lending services. The measure, announced this Tuesday, will remain in effect until new regulatory guidelines are established for the sector.
The agency explained that cryptocurrency lending still operates in a legal gray area, which can generate significant risks and potential losses for investors. According to the FSC, around 27.600 users borrowed approximately 1,5 trillion won (approximately US$1,1 billion) in the first month alone after these services launched on a local exchange. Of this total, 13% were forced to liquidate their positions due to market volatility.
In July, Upbit launched a credit line that allowed customers to borrow up to 80% of their deposits in Korean won or digital assets, using Tether (USDT), Bitcoin (BTC), and XRP as collateral. Shortly after, Bithumb introduced a similar service, allowing loans of up to four times the deposited amount in cryptocurrencies or fiat currency. Other exchanges followed suit.
These initiatives emerged after the ruling party proposed the Digital Assets Basic Law, which would regulate lending services offered by cryptocurrency exchanges. However, on July 31, the FSC ordered the platforms to review their operations, highlighting the high risk of losses. Both Upbit and Bithumb had suspended their operations the previous month, with Bithumb later resuming with stricter regulations.
The agency also reported that, following the introduction of USDT-backed loans, there was an unusual increase in sell orders for the stablecoin within exchanges, putting pressure on its price and causing market distortions. To contain the impact, the FSC will allow refunds and extensions of existing contracts, in addition to conducting on-site inspections of exchanges that fail to comply with the new guidelines.
The regulator also reported that it is working on specific guidelines to officially integrate cryptocurrency lending services into the country's financial system. This change comes as the South Korean government, under the leadership of President Lee Jae Myung, moves to relax industry regulations, prepares for the approval of spot cryptocurrency ETFs, and evaluates the creation of won-backed stablecoins.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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