South Korea’s Financial Services Commission (FSC) has ordered local cryptocurrency exchanges to suspend lending services starting August 19, 2025.

The FSC said the halt will remain in place until official guidelines for cryptocurrency lending are established.

Exchanges including Upbit and Bithumb had offered borrowing services, with some pausing and restarting before the latest order.

The regulator cited legal uncertainty and risks of user losses, noting that around 27,600 investors borrowed 1.5 trillion won (US$1 billion) in the first month after a digital asset company launched its lending service.

The FSC said 13% of these borrowers were forced to liquidate due to price swings, and that a surge in sell orders after USDT lending began led to a sharp drop in the stablecoin’s price on local platforms.

Existing lending contracts can be repaid or extended, but exchanges must comply or face inspections.

The FSC said it will develop formal guidelines for cryptocurrency lending to improve user protection and provide regulatory clarity.

🔗 Source: The Block

🧠 Food for thought

1️⃣ South Korea’s crypto regulatory pattern follows historical precedent of temporary halts before formal frameworks

The current suspension of crypto lending services echoes South Korea’s approach during the 2017-2018 crypto boom, when similar regulatory uncertainty created market volatility before eventual clarification.

In January 2018, South Korea’s Justice Minister suggested potential trading bans, causing significant market disruption, but the government later clarified it would focus on regulatory measures rather than shutdowns 2. The pattern repeated with real-name account requirements that year, where temporary restrictions were implemented before formal guidelines were established 3.

This historical precedent suggests the current lending suspension may follow a similar path, with a temporary halt followed by structured regulation rather than permanent prohibition.

The FSC’s statement that it will “promptly develop guidelines” and allow existing contracts to continue supports this interpretation, indicating the regulator’s intent to formalize rather than eliminate crypto lending services 1.

2️⃣ South Korea’s outsized influence on crypto markets amplifies regulatory impact globally

South Korea’s regulatory decisions carry significant weight in global crypto markets due to the country’s massive trading volume relative to its population size.