South Korea’s Financial Services Commission (FSC) has introduced new rules for crypto lending, effective immediately. The new regulations cap interest rates on crypto lending at 20% and ban leveraged lending altogether. The scope of crypto lending is also restricted to the top 20 tokens by market capitalization, or tokens that are listed on at least three won-based exchanges. These measures follow a wave of reports indicating the introduction of leveraged lending services by local exchanges and concerns over investor protection.
The new rules aim to bring clarity to the crypto lending market, which had been operating with limited oversight. The FSC highlighted that the move is part of its broader effort to safeguard users and ensure financial stability in the rapidly growing crypto sector.
Mandatory borrower education and transparency measures
In addition to restricting interest rates and leveraged loans, the FSC has mandated that first-time borrowers must complete online training and a suitability test set by the Digital Asset eXchange Alliance (DAXA), a local self-regulatory organization. These steps are designed to ensure that borrowers fully understand the risks associated with crypto lending before participating.
Furthermore, the new rules dictate that exchanges must notify users in advance of forced liquidations, allowing them the opportunity to add capital to their positions in order to avoid liquidation. The regulations also state that exchanges must use their own capital to provide lending services, effectively banning third-party lending collaborations to prevent any attempt at regulatory evasion.
Regulatory context and official remarks
These rules reflect South Korea’s growing wariness of the cryptocurrency market, particularly in light of the extreme price volatility that many digital assets experience. Lee Eok-won, the nominee for FSC chairman, recently expressed concern about the viability of crypto, stating that it has “no intrinsic value,” lacks a “monetary function,” and suffers from “extreme price volatility.”
Reports in late July also indicated that South Korea’s central bank is preparing to launch a virtual asset committee to increase its scrutiny of the crypto market.
South Korea’s crypto adoption trends
Despite these concerns, the adoption of cryptocurrencies continues to grow in South Korea. A report shows that over 16 million people in South Korea now use crypto exchanges, which accounts for more than 30% of the population. This surge in interest can be attributed to both the financial opportunities presented by cryptocurrencies and the growing desire among young people to escape financial difficulties.
The popularity of crypto in South Korea, especially among younger generations, is seen by some as a response to financial desperation rather than a belief in blockchain technology. Eli Ilha Yune, Chief Product Officer at Anzaetek, noted that many South Korean youths are seeking financial relief, not necessarily embracing the Web3 revolution.
South Korea’s new crypto lending regulations mark a significant step in tightening oversight of the country’s crypto sector. The rules aim to protect users while providing clearer guidelines for exchanges offering lending services. While concerns about the volatility of cryptocurrencies persist, adoption continues to rise, particularly among the younger population. This evolving landscape will likely require continued regulatory adaptation as digital asset use continues to expand in South Korea.