South Korea Enforces 20% Cap and Bans Leverage in Crypto Lending

Highlights:

• Interest rates for crypto lending are now capped at 20% annually.
• Leveraged loans exceeding collateral are no longer allowed.
• Lending is limited to the top 20 cryptos or those on three local exchanges.

South Korea has implemented stringent regulations around crypto lending in an effort to protect users and stabilize the market. On September 5, the Financial Services Commission (FSC) released a new framework for centralized exchanges. These new rules come on the heels of a sharp increase in crypto loan activity on major local platforms. Upbit and Bithumb had previously launched services with which users could take loans against their digital assets.

The risks have raised concerns that on August 18, all crypto lending services were temporarily shut down. Under the new rules, that suspension is now replaced by clear boundaries and new safeguards. The rules are currently self-regulating but are likely to develop into legislation.

🇰🇷 South Korea sets limit on crypto lending, caps interest rates at 20% and bans leveraged loans. 👀 pic.twitter.com/y1SR198M9X

— Crypto Crib (@Crypto_Crib_) September 5, 2025

Crypto Lending Sees Interest Cap and Leverage Ban

The most notable rule is that crypto lending interest rates are capped at 20% per year. This step limits the high-interest-rate borrowing that further burdens retail users. However, at the same time, all leveraged crypto loans are prohibited. Borrowers can no longer be granted digital assets worth more than their collateral. This rules out services that were previously permitted that allowed borrowing up to four times collateral.

Another prohibition concerns payment in fiat currency. Borrowers were now forced to repay in crypto, since cash-based settlements violated local credit laws. Exchanges should utilize their own funds to lend funds in order to ensure transparency. Under the new regime, collaboration with other parties or getting around regulations by indirect means is prohibited.

Lending Conditions and Approved Cryptocurrencies

FSC’s new regulations also set caps on how much money can be lent per user. From transaction history and experience, these are between 30 million and 70 million Korean won.
All new users are required to pass an online training and suitability test with no failures before borrowing. Exchanges must inform users before a position is at risk of liquidation.

Crypto lending is now limited to high-quality assets. Only cryptocurrencies that are within the top 20 by market cap or that are listed on at least three KRW exchanges are allowed. If any digital asset is tagged as cautionary or has abnormal activity, lending services for that token must be halted immediately.

Exchanges are also expected to publicly report all lending activities, including interest rates, volumes by assets and forced liquidations. These updates have to be issued periodically, monthly or in real time. In addition, trading platforms should ensure that the market is not disrupted by large and concentrated trading positions. Internal risk control is now needed to deal with the threats of price fluctuations.

Government Pushes Toward Full Legal Framework

The move comes after a surge in crypto lending during the period of July-August. More than 1.5 trillion won worth of loans were issued in the span of one month, and 13% of borrowers were liquidated. As a result, the FSC and Financial Supervisory Service have worked with DAXA to develop these guidelines.

In addition, South Korea has now adopted the OECD Crypto-Asset Reporting Framework. In 2027, exchanges will start sharing information with global tax authorities. Moreover, South Korea is working on creating a legal framework for Korean won-pegged stablecoins.

SOUTH KOREA PLANS TO ADOPT THE OECD'S NEW TAX REPORTING FRAMEWORK FOR #CRYPTO. 📢

AS PER THE FRAMEWORK, ALL CRYPTO TRADES WILL BE REPORTED TO AUTHORITIES. pic.twitter.com/ScG2lBjOqT

— The Moon Show (@TheMoonShow) September 2, 2025

The officials noted that the current rules are just a starting point. Once the performance of the new system has been evaluated, the complete legislation is expected.