South Korea's Financial Services Commission (FSC) has ordered all domestic cryptocurrency exchanges to immediately halt crypto lending services, effective August 19, 2025. This directive comes as the agency works to establish clear regulatory guidelines for the rapidly evolving digital asset industry. The FSC's decision underscores a growing global trend toward increased regulation of crypto markets, aiming to balance innovation with investor protection.
The suspension of crypto lending services reflects concerns that these operations currently exist in a legal "gray area," potentially exposing users to significant risks. Crypto lending has surged in popularity, offering attractive interest rates to users who lend their digital assets. However, this growth has also highlighted vulnerabilities such as volatile markets, platform insolvency, and a lack of formal safeguards. The FSC aims to mitigate these risks by developing a comprehensive regulatory framework that addresses capitalization, disclosure, custody, liquidity, and risk management.
Under the FSC's administrative guidance, existing crypto lending contracts will continue to be honored, allowing users to either repay or extend their loans beyond the original maturity dates. However, exchanges are now prohibited from offering new lending services until the new regulatory framework is in place. The FSC has warned that platforms failing to comply with this directive may face on-site inspections and potential sanctions.
The move to suspend crypto lending services follows a period of rapid expansion in the South Korean crypto market. In July 2025, Upbit launched a service enabling users to borrow against their Korean won deposits or digital assets, while Bithumb introduced a service offering users up to four times the value of their held assets in cryptocurrency loans. This surge in lending activity raised concerns among regulators, particularly regarding the potential for liquidations and losses due to price volatility.
According to the FSC, approximately 27,600 investors borrowed around 1.5 trillion won ($1.1 billion) in the first month after a digital asset company launched its lending services. Due to price fluctuations, about 13% of these users were forced to liquidate their positions. The FSC also noted that the introduction of USDT lending services led to an unusual drop in the stablecoin's price on some exchanges, causing market disruptions.
The FSC's decision to suspend crypto lending is not intended as a permanent ban. Instead, the agency plans to introduce a clear regulatory framework that promotes investor protection and transparency while integrating leveraged lending into the broader digital asset ecosystem. This framework may be formalized through the Digital Asset Basic Act, which could authorize lending once adequate safeguards are established. South Korea is also preparing to lift restrictions on institutional crypto trading and approve the country's first spot exchange-traded funds (ETFs).
While some experts believe that enhancing safeguards would be a more effective solution than imposing suspensions, the FSC's actions reflect a broader shift in how governments approach digital finance. As crypto platforms increasingly resemble traditional banks, authorities are moving to bring them under similar scrutiny. The suspension of crypto lending services signals a proactive approach to preventing future crises and ensuring market stability.
