South Korea Rigs Crypto Lending to Prioritize Investor Safety

South Korea's digital asset landscape is evolving rapidly as regulatory frameworks and institutional investment strategies adapt to the growing influence of cryptocurrency. In a significant move, the Financial Services Commission (FSC) introduced stringent regulations on crypto lending on September 5, 2025. These guidelines aim to protect retail investors by capping interest rates at 20% annually and prohibiting leveraged lending that exceeds the value of collateral. The FSC also mandated that exchanges must only use their own assets for lending, eliminating third-party collaboration models that had previously operated in regulatory gray areas [3].

The regulatory intervention came in response to a surge in crypto lending activity, with approximately 27,600 investors borrowing $1.1 billion in a single month through platforms like Upbit and Bithumb. This rapid growth led to heightened volatility, with 13% of investors facing forced liquidation. The FSC temporarily suspended all crypto lending services in August 2025 to reassess the risks. The new rules include mandatory borrower training, lending limits based on trading experience, and the requirement for platforms to disclose liquidation risks to users [3].

South Korea is also aligning itself with international standards by preparing to implement the OECD’s Crypto Asset Reporting Framework (CARF) starting in 2026. The framework will facilitate the exchange of virtual asset transaction data with other member countries, enhancing tax transparency and preventing offshore tax evasion. Korean exchanges such as Upbit and Bithumb will be required to report user data on foreign trades to the National Tax Service, while details of overseas trades by Korean investors will be shared with foreign tax authorities. This marks a significant step in South Korea’s broader strategy to integrate its digital finance ecosystem with global regulatory systems [4].

In parallel, South Korean institutional players are expanding their digital asset management capabilities. Eddid Financial, for example, secured an SFC Type 9 license, allowing it to manage portfolios with up to 100% in digital assets. The firm is preparing to launch a 100% crypto fund that will support stablecoin-based subscription and redemption. This move reflects a growing trend among traditional financial institutions to enter the crypto market with structured, institutional-grade offerings [2].

Meanwhile, HashKey Group, a major player in the digital asset space, unveiled its Digital Asset Treasury (DAT) strategy, aiming to bridge traditional finance and the crypto ecosystem. HashKey plans to launch Asia’s largest multi-currency DAT ecosystem fund, targeting an initial fundraising goal of over USD 500 million. The fund will focus on institutional-grade investments in Ethereum and Bitcoin ecosystem projects, offering a compliant and diversified approach to digital asset management. HashKey’s extensive experience in the Ethereum ecosystem, including its Ethereum Layer 2 chain with USD 172.66 million in on-chain assets, positions it as a key player in the evolution of digital asset infrastructure [1].

The convergence of regulatory clarity, institutional investment, and technological innovation is reshaping South Korea’s digital asset market. As platforms and investors navigate the new lending regulations and OECD alignment, the country is positioning itself as a global hub for digital finance. These developments highlight South Korea’s strategic approach to integrating crypto assets into the broader financial system while maintaining a focus on investor protection and market stability.

Source:

[1] HashKey Unveils DAT Strategy: Pioneering the Institutional Bridge Between TradFi and Crypto (https://www.prnewswire.com/news-releases/hashkey-unveils-dat-strategy-pioneering-the-institutional-bridge-between-tradfi-and-crypto-302548728.html)

[2] Eddid Financial Secures SFC Type 9 License Uplift to Expand Digital Asset Management (https://www.prnewswire.com/apac/news-releases/eddid-financial-secures-sfc-type-9-license-uplift-to-expand-digital-asset-management-302548710.html)

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

[4] South Korea to Join OECD's Crypto-Asset Reporting Framework (https://www.ifcreview.com/news/2025/september/south-korea-south-korea-to-join-oecd-s-crypto-asset-reporting-framework/)