South Korea’s Financial Services Commission (FSC) have ordered exchanges to suspend new crypto lending products until formal guidelines are in place, referring to mounting risks for users and market stability.
Supervisory authorities pointed to a recent incident in Bithumb, where more than 27,000 customers knocked lending services in June, with 13% forced to liquidation after security values swung against them.
The relocation of FSC comes days after analysts at Galaxy Digital published a report in which they marked the growing amount of gearing in crypto markets as a concern.
The administrative guidance from FSC allows existing loans to run their course, but bars roll out new lending services. Officials said that if platforms ignore the directive, on -site inspections and other supervisory actions will follow. Formal lending guidelines are expected in the coming months.
Korea’s crash lands when crypto-gearing globally exceeds against Bull market levels. Galaxy’s report shows cryptocollateralized loans that jumped 27% in the 2nd quarter to $ 53.1 billion, the highest since the beginning of 2022.
Last week’s liquidation wave of $ 1 billion, which was triggered by Bitcoin’s retreat of $ 124,000 to $ 118,000, highlighted how quickly overstretched efforts can relax.
Analysts warn that stress points are already displayed across the system: Defi-Liquidity Crunches, ETH POINTING EXIT cows and expansion of spreads between on-chain and over-the-counter dollar lending rates.
However, not everyone agrees with the approach the Korean authorities are taking. DNTV Research’s Bradley Park claims that better protective measures are needed and not a shutdown.
“The rational approach is to upgrade UI/UX, risk information and LTV controls for exposure management,” Park told Coindesk in a note and noted that most exchange loans are in stableecoins used to build short positions.
He added that the regulator’s real concern may be market structure distortion, such as the negative Kimchi prize, rather than the service itself.
Park said that transparency holes also complicate supervision: Bithumb reveals the extent of its lending activity, but upbit, the country’s biggest exchange, does not. This opacity could make it more difficult for supervisory authorities to judge systemic risks and may be a key factor behind the carpet sustaine pension.
“Until these structural problems are treated, reopening can take time; priority should be to understand the mechanism and adopt a data -driven design rather than carpet restrictions,” he concluded.
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