South Korea Clamps Down on Crypto Lending to Cool the Speculative Fire

South Korea has introduced a comprehensive regulatory framework for crypto lending services, aimed at enhancing investor protection and curbing speculative practices in the rapidly evolving digital asset market. On September 5, the country’s Financial Services Commission (FSC) issued detailed guidelines that impose strict limitations on interest rates, collateral use, and the types of cryptocurrencies eligible for lending. These measures, which follow months of regulatory deliberation, reflect growing concerns among officials about the risks associated with unregulated lending practices in the crypto space.

The new rules cap the interest rate on crypto lending services at 20% per annum, a significant restriction on the previously variable rates offered by platforms. Additionally, leveraged lending—where loans exceed the value of the collateral—is now prohibited, reducing the potential for high-risk borrowing. Only the top 20 cryptocurrencies by market capitalization or those listed on at least three local exchanges are permitted for lending. This restriction aims to limit exposure to volatile or less-established tokens that may pose higher systemic risks. If a cryptocurrency is labeled as a “warning” asset by exchanges, lending services for it must be suspended immediately.

The guidelines also emphasize transparency and risk management for users. Platforms must notify clients in advance if a position is at risk of liquidation and allow them to add capital to avoid forced sales. Furthermore, companies are required to use only their own capital for lending services, and third-party intermediaries are explicitly banned to prevent regulatory arbitrage. First-time borrowers must complete mandatory online training and suitability tests administered by the Digital Asset eXchange Alliance (DAXA), a self-regulatory organization. These measures are intended to ensure that users understand the risks involved and are adequately informed before engaging in lending activities.

The FSC has also imposed personalized limits on lending based on a user’s transaction history and experience level, reinforcing a risk-based approach to oversight. These adjustments align with global regulatory trends that emphasize the need for tailored investor protections. The regulator plans to codify the new framework into law in the future, following an evaluation of its implementation.

The regulatory clampdown follows a surge in crypto lending services offered by major local exchanges such as Upbit and Bithumb, which had recently launched leveraged lending options. In August, the FSC ordered exchanges to suspend these services temporarily while guidelines were finalized. The move has been interpreted as part of a broader strategy to bring digital asset markets under stricter regulatory scrutiny, a stance echoed by FSC nominees who have publicly criticized the volatility and speculative nature of crypto assets.

Despite regulatory caution, crypto adoption in South Korea remains robust. As of March 2025, over 16 million users were registered on local exchanges, accounting for more than 30% of the country’s population. Some analysts attribute this growth to financial pressures among younger South Koreans, who increasingly view crypto as an alternative to traditional investment channels. However, the new rules are expected to temper speculative behavior by limiting high-risk lending and promoting more responsible market practices.

The implementation of these regulations underscores South Korea’s balancing act between fostering innovation in the fintech sector and safeguarding market stability. As the FSC continues to refine its approach to digital assets, the regulatory environment is likely to remain dynamic, shaping both the domestic and global crypto landscape.

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[1] South Korea caps crypto lending rates at 20%, bans ... (https://cointelegraph.com/news/fsc-caps-crypto-lending-rates-south-korea)

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

[3] South Korea caps crypto lending at 20% interest, bans ... (https://www.theblock.co/post/369574/south-korea-crypto-lending-guideline)