South Korea’s Financial Services Commission (FSC) was forced to ban domestic cryptocurrency exchanges from offering credit services following problems in the market. This was due to the rapid introduction of credit trading products that attracted $1.1 billion in loans within just one month.
The CFP issued administrative guidelines on August 19. All exchanges in the country, including Upbit and Bithumb have been forced to suspend cryptocurrency operations until the situation is officially resolved.
This happened after approximately 27,600 investors borrowed 1.5 trillion won ($1.1 billion) through DeFi services, with 13% of traders’ positions liquidated due to price volatility in the crypto market.
Korea’s largest exchanges rushed to launch loan products following the ruling party’s proposal for a Basic Digital Asset Act that would officially authorize such services. Upbit introduced loans secured by Korean won and digital asset deposits in July, while Bithumb offered four times the leverage of the collateral value. Both platforms had to shut down operations last month under regulatory pressure.
Lending services in USDT triggered unusual selling pressure, which led to a significant drop in the price of the stablecoin on domestic exchanges. This significantly disrupted normal trading patterns and created arbitrage opportunities between the Korean and international markets. In fact, the price difference between European and Korean exchanges has always made the latter popular among arbitrageurs.
Meanwhile, South Korea is preparing to approve its first spot cryptocurrency ETFs and is gradually lifting restrictions on institutional trading.
Source: FSC
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