Regulators freeze services after mass liquidations, sparking debate on safer alternatives
South Korea’s top financial regulator has suspended new cryptocurrency lending products, citing growing concerns over leverage and potential risks to investor protection. The move follows a wave of forced liquidations that rattled the market and intensified scrutiny of the country’s digital asset sector.
Why Regulators Stepped In
The Financial Services Commission (FSC) announced that no new lending services will be permitted until official guidelines are established. The decision came after a $1 billion liquidation event in June, when more than 27,000 customers at a major Korean exchange used lending products to boost trading positions. According to FSC data, 13% of those borrowers were forced into liquidation as collateral values dropped sharply.
“Excessive leverage in crypto markets creates systemic vulnerabilities,” an FSC spokesperson said. “Our priority is to safeguard retail investors and maintain market stability.”
Industry Reactions and Criticism
While regulators defend the suspension, industry experts argue that a complete freeze could stifle innovation. Instead, they advocate for stricter safeguards, improved transparency, and better risk management tools.
“Shutting down lending services is a blunt approach,” . “What the market needs is clear rules, real-time disclosure of risks, and investor education to prevent future crises.”
Market participants also note that lending products are a key part of global crypto finance, offering liquidity and yield opportunities. Without them, South Korea risks falling behind regional competitors that continue to experiment with regulated lending frameworks.
The FSC has confirmed that it is drafting new guidelines that will balance investor protection with market innovation. Until then, existing lending services will remain under review, and no new products will be approved.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.