- FSC orders crypto exchanges to suspend lending services temporarily.
- Volatility forces 13% of borrowers to liquidate digital asset positions.
- Regulators push for clearer guidelines to protect crypto investors.
South Korea’s Financial Services Commission (FSC) has ordered local digital asset exchanges to temporarily suspend their crypto lending operations. This action, which takes effect next Tuesday, will be in place until the government develops guidelines on such services.
The move came after lending products emerged in big exchanges earlier this year, raising regulatory concerns about market risks.
In July, Upbit launched a service that allows customers to borrow up to 80 percent of the value of their Korean won deposits or digital assets such as Tether, Bitcoin, and XRP. Bithumb has also launched a lending service that allows users to take loans of up to four times their assets.
Regulators were very concerned, as they feared that the quick adoption of such services could affect the stability of the market and the safety of investors.
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Growing Concerns Over Market Volatility
The FSC’s decision comes after an alarming report highlighting the risks posed by these new lending products. According to the FSC, around 27,600 users borrowed approximately 1.5 trillion won (roughly $1.1 billion) within the first month of the service’s launch.
Nevertheless, the fluctuations in the market made 13 percent of borrowers liquidate their positions since the value of their collateral decreased.
The regulator further observed that the launch of Tether lending had created an outpouring of sell orders, which resulted in the abnormal decline of the Tether price on the exchanges, causing a stir in the market. Such volatility also justified the necessity of introducing a more rigid regulation to the crypto lending industry to safeguard investors and ensure stability.
In the absence of a formal regulatory framework for such services, the FSC had in the past encouraged exchanges to reconsider their operations. Although platforms such as Upbit and Bithumb temporarily suspended their activities in July, the new pause will last until the new regulations are established, and digital asset investors will be more secure.
South Korea’s regulatory actions highlight the growing need for oversight in the rapidly evolving digital asset market. They signal that exchanges will face tighter scrutiny until a clear legal framework is in place.
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