The Financial Services Commission (FSC) of South Korea has instructed local cryptocurrency exchanges to temporarily suspend credit services starting Tuesday. This directive comes as the regulatory authority aims to mitigate risks associated with high user losses and maintain market stability until a new regulatory framework is established. The FSC has also noted that on-site inspections will be conducted at exchanges that do not comply with this notification.
Exchanges Ordered to Suspend Crypto Credit Services
According to the issued notice, Upbit initiated a service on July 4, 2025, allowing users to borrow up to 80% of their assets using USD deposits or cryptocurrencies as collateral, offering options such as USDT, Bitcoin 
$76,467, and XRP. Bithumb introduced a product enabling users to borrow up to four times their collateral value in cryptocurrencies. Other crypto exchanges followed suit, quickly leading to the development of a widespread credit ecosystem.
Crypto Credit Services on Hold Until New Regulations Established
On July 31, the FSC called for a reassessment of these products, highlighting the legal ambiguities and high risk of losses for users. According to data shared by the regulatory body, approximately 27,600 investors borrowed a total of 1.5 trillion South Korean won (about 1.1 billion USD) within the first month of a cryptocurrency company launching its credit service. Due to price fluctuations, 13% of these users faced losses through forced liquidation. Additionally, unusual selling pressure was observed on exchanges following the introduction of USDT credits, leading to significant price drops in stablecoins and market disruptions.
The FSC announced its intention to swiftly prepare credit guidelines to protect users and reduce uncertainty. Leveraged cryptocurrency credit services will be integrated into the existing market structure with clear and defined regulations. Until the guidelines come into effect, existing contracts will allow for repayments and extensions. Non-compliant exchanges will be subject to on-site inspections.
The notice also indicated a shift towards more transparent regulations in the country. Financial authorities are preparing to gradually lift restrictions on institutional investors’ cryptocurrency transactions and are working on approving the first spot cryptocurrency exchange-traded funds (ETFs). Under President Lee Jae Myung’s administration, preparations for establishing a stablecoin market indexed to the local currency are also underway.
