[author: Mack Wilding]
In early July 2025, South Korea’s top crypto exchanges—Upbit and Bithumb—ignited a speculative firestorm by rolling out high-leverage crypto lending products that allowed users to borrow up to 400% of their collateral. The response from users on those platforms was immediate. Within weeks, 27,600 investors borrowed a staggering ₩1.5 trillion (≈ $1.1 billion), effectively fueling a nationwide margin-trading rush. Traders piled into Bitcoin, Ether, XRP, and stablecoins, chasing quick gains in a rapidly recovering market.
But the excitement collapsed almost as quickly as it began. A sudden price dip in major tokens triggered forced liquidations on roughly 13% of all loans, wiping out investor collateral and sending negative ripples through South Korea’s crypto markets. The fallout got the immediate attention of regulators, prompting the Financial Services Commission (FSC) to freeze all new crypto lending services as of August 2025. What started as a move to boost liquidity in the crypto market has now become a cautionary tale about high leverage, fragile markets, and regulatory reckoning.
South Korea’s swift response stands in stark contrast to the fragmented and hesitant regulatory environment in the US. The FSC’s blanket freeze, though heavy-handed, immediately halted risky lending practices until clear consumer safeguards and capital standards can be established. This reflects South Korea’s broader approach to crypto oversight, in which the FSC treats exchanges like financial institutions, demanding transparency, custodial separation, and compliance within a single, coordinated framework.
In the United States, by contrast, the crypto lending landscape remains largely governed by post-hoc enforcement and jurisdictional conflict. While the SEC and CFTC continue to spar over authority, major U.S. exchanges such as Coinbase and Kraken operate in a gray zone—offering staking, derivatives, and structured products under a patchwork of state money transmission laws and pending court decisions. The American approach has been to depend on litigation-driven regulation, where compliance expectations emerge only after enforcement actions or settlements.
