South Korea’s FSC Cracks Down: Crypto Lending Services Face Immediate Suspension – Here’s the Real Reason

South Korea's Financial Services Commission (FSC) just dropped a regulatory hammer—crypto lending services must halt operations immediately. No grace period, no negotiations. Here's why the watchdog is biting.

The Compliance Crackdown

Anonymous lending platforms? Overleveraged users? The FSC isn't playing nice with what it calls 'shadow banking' risks. Their move targets unchecked interest rates and opaque collateral practices—classic crypto Wild West stuff.

Market Shockwaves

Local exchanges scramble as yield-hungry investors face sudden withdrawal freezes. Meanwhile, traditional banks quietly smirk—nothing pleases legacy finance like watching decentralized rivals stumble.

One thing's clear: when regulators say 'jump,' even decentralized finance asks 'how high?'—at least in jurisdictions that still care about rules. Or maybe this is just bureaucrats missing the point again—since when has stopping innovation ever worked?

How big is crypto lending in South Korea?

According to the translated release, the FSC reported that about 27,600 investors borrowed approximately 1.5 trillion won or equal to $1.1 billion in the first month after a digital asset firm launched its lending services. Because of price volatility, 13% of them were forced to liquidate their positions. The agency declined to identify the company.

The FSC also noted that when exchanges started offering USDT (USDT) lending, a wave of sell orders caused the stablecoin’s price to fall sharply on these platforms. This in turn, ended up disrupting the market.

Since President Lee Jae-Myung was sworn into office, South Korea’s stance on crypto have shifted to a more open and pro-crypto approach, mirroring that of the United States under Trump. Lee has vowed to permit crypto assets backed by the Korean won and push for crypto-backed ETFs.