South Korea Caps Crypto Lending at 20% Interest, Bans Over-Collateralized Loans

South Korea’s Financial Services Commission (FSC) implemented strict crypto lending regulations, capping interest rates at 20% annually and banning leveraged loans exceeding collateral value, according to Cryptonews. The rules, effective immediately via the Digital Asset Exchange Alliance (DAXA), aim to protect investors and stabilize markets after a $1.1 billion lending surge led to 13% of 27,600 investors facing liquidations in July, per Invezz.

The guidelines prohibit Korean won cash lending and third-party lending arrangements, requiring exchanges like Upbit and Bithumb to use their own assets. Lending is restricted to the top 20 cryptocurrencies by market cap or those listed on three or more won-based exchanges. First-time borrowers must complete DAXA’s online training and pass aptitude tests, while tiered borrowing limits based on trading history enhance risk management, as noted by Crypto.news.

This follows an August 18 suspension of lending services due to regulatory gaps, with inspections from August 26 to September 2 revealing high-risk practices. The FSC’s measures address concerns over volatile markets, where platforms like Bithumb previously offered loans up to four times collateral value, per The Block. The regulations may push investors to unregulated offshore platforms, but supporters argue they bolster market legitimacy, attracting institutional interest.

South Korea’s crypto oversight aligns with its adoption of the OECD’s Crypto-Asset Reporting Framework, effective 2027, signaling a robust regulatory stance. These rules could set a global benchmark, fostering a safer, more transparent crypto ecosystem.