South Korea Cracks Down: Crypto Lending Gets a Reality Check

South Korea has introduced stringent regulatory measures to stabilize its rapidly expanding cryptocurrency lending market, capping interest rates at 20% and banning leveraged loans exceeding collateral value. The Financial Services Commission (FSC), in collaboration with the Financial Supervisory Service and the Digital Asset Exchange Association, announced the new “Virtual Asset Lending Guidelines” on September 5, 2025, to mitigate risks for investors and align the sector with global standards [3].

The move follows a surge in lending activity, with over 27,600 investors borrowing a total of 1.5 trillion won ($1.1 billion) in a single month. Of these, 13% faced liquidation due to volatile market conditions [5]. In response, the FSC temporarily halted all lending services on August 18 to address regulatory ambiguities and assess the systemic risks. The new framework aims to curtail excessive risk-taking by centralized exchanges and enhance transparency for users [5].

Under the guidelines, lenders are prohibited from offering crypto-backed loans in Korean won or engaging in partnerships with third-party providers to circumvent regulations. Only the top 20 cryptocurrencies by market capitalization or those traded on at least three local exchanges are eligible for lending [4]. Assets flagged for trading restrictions or suspected of abnormal activity are excluded from lending programs. This restriction is intended to prevent the use of unstable or speculative tokens in loan offerings [6].

To protect borrowers, the FSC has implemented tailored lending limits based on users' trading experience and history, ranging from 30 million to 70 million won. First-time borrowers are required to complete mandatory online training and aptitude tests administered through the Digital Asset Exchange Association (DAXA) [5]. Platforms must also issue advance warnings to users when their positions near liquidation thresholds, providing them with an opportunity to mitigate losses. These measures aim to reduce the likelihood of abrupt financial setbacks for retail investors [3].

The regulatory intervention reflects a broader global trend of tightening oversight in the crypto lending sector, driven by a combination of rapid growth and frequent failures in the space. South Korea’s approach emphasizes the importance of balancing innovation with investor safety, particularly in a market where high-interest rates and leveraged products had previously attracted significant retail participation [3]. By imposing a 20% annual interest rate cap, the FSC has effectively curtailed the most aggressive lending practices that had emerged during the market’s recent expansion [4].

The Digital Asset Exchange Alliance will oversee compliance with the new rules, with the FSC planning to formalize these standards in legislation at a later date [6]. This regulatory clarity is expected to encourage long-term confidence in the market while deterring unregulated or risky practices. The guidelines also highlight the government’s intent to maintain a disciplined digital asset environment amid growing concerns about financial instability and investor harm [3].

Source:

[1] title1 (https://bitcompare.net/coins/bitcoin/lending-rates)

[2] title2 (https://bitcompare.net/coins/ethereum/lending-rates)

[3] South Korea Tightens Rules on Crypto Lending Platforms (https://cryptodnes.bg/en/south-korea-tightens-rules-on-crypto-lending-platforms/)

[4] South Korea will limit the maximum interest rate for ... (https://www.chaincatcher.com/en/article/2203545)

[5] South Korea Caps Crypto Lending at 20% Interest, Bans Over ... (https://finance.yahoo.com/news/south-korea-caps-crypto-lending-101212429.html)

[6] South Korea Implements New Rules for Crypto Loans (https://forklog.com/en/south-korea-implements-new-rules-for-crypto-loans/)