Quick Takeaways
- Interest on crypto lending is now capped at 20%
- Leveraged loans beyond collateral value are banned
- Only top 20 or widely traded cryptocurrencies allowed
Crypto Lending Rules Get a Big Overhaul in South Korea
South Korea just made a bold move in the world of crypto lending. On Friday, the country’s top financial watchdog, the Financial Services Commission (FSC), rolled out a new set of rules aimed at protecting users and bringing some order to the fast-growing space.
Under the new guidelines, interest rates on crypto loans can’t go over 20%, and leveraged lending that exceeds the value of your collateral is no longer allowed. That means no more borrowing big using small deposits something that’s become far too common on crypto platforms.
This shake-up comes after major platforms like Upbit and Bithumb started rolling out new lending services, sparking concern among regulators. So now, the government is stepping in to set some clear boundaries. See the official announcement from the FSC here.
Only Top Crypto Assets Are Eligible for Lending Now
The new rules don’t just limit how much you can borrow or what interest you’ll pay they also restrict which crypto assets can even be used for lending.
Only the top 20 cryptocurrencies by market cap, or those listed on at least three licensed exchanges in South Korea, are allowed.
This is a big shift, especially for platforms that previously offered lending services on hundreds of tokens. If an asset gets flagged as risky also known as “cautionary” on any local exchange, lending services for that token have to stop immediately.
So, if you’re into more obscure altcoins, don’t expect to borrow or lend them on South Korean platforms anymore. The focus is clearly on trusted, well-established crypto assets.
Crypto Companies Must Play by New Rules Or Sit Out
The FSC isn’t just regulating which tokens can be lent. It’s also putting stricter controls on the crypto platforms themselves.
For starters, companies now have to use their own funds for lending. In other words, they can’t lean on third parties to offer loans and dodge the rules. This ensures that platforms take full responsibility for the risks they’re taking on.
Also, if you’re borrowing crypto, you won’t be allowed to repay with fiat money like Korean Won because that’s considered a violation of traditional credit laws.
On top of that, user protections are being strengthened. How much you can borrow now depends on your experience and trading history, and if you’re close to being liquidated, the platform must warn you ahead of time.
All these updates will be enforced by the Digital Asset Exchange Alliance (DAXA), a body that oversees compliance for local exchanges. More on DAXA here.
Why This Matters for Crypto Users in South Korea and Beyond
These new rules didn’t come out of nowhere. Just last month, South Korea’s FSC told exchanges to pause their lending services after a wave of new offerings created uncertainty in the market.
Now, with this guideline, they’re not just reacting they’re setting a clear direction for how crypto lending should work going forward. And this might only be the beginning.
The FSC said they’ll watch how the new rules perform and may turn them into formal law in the future. Provided that such an approach proves successful, other countries might emulate South Korea.
Currently, many governments are still wondering how to tackle the risks posed by crypto lending while maintaining the status of an innovator.
