Macro Factors Driving Koreans to Crypto Lending

Korea’s unique system of apartment rentals called Jeonse and a steep proposed capital gains tax are on a collision course.


Seoul skyline; Source: Shutterstock


key takeaways

  • Crypto lending in Korea is taking off because of two major macro changes to the economy
  • Surging real estate prices and monthly rents means the government is curbing loans to the sector, while a proposed capital gains tax for crypto is accelerating interest in the crypto loan industry

What do you get when you mix a unique system of apartment rentals involving fronting the landlord sometimes tens or hundreds of thousands of dollars for a term loan called ‘Jeonse, a crypto capital gains tax, and a government looking to tax crypto while restricting ‘Jeonse’ loans? A fertile ground for the development of crypto loans. 

In Korea many people do not pay rent every month. No, this doesn’t mean that it’s a nation of freeloading squatters, but rather tenants deposit a sum of money equivalent to 50-70% of the property’s value into the landlord’s account for the term of the lease. When the tenants move out, that money is returned. Effectively, this gives the landlord interest-free liquidity to expand their holdings while the tenant lives rent-free. 

The problem, however, is that property value in urban Korea, particularly Seoul, is soaring. This means that for many, the amount of money required to get into the rental market via the Jeonse system is out of reach. Banks have stepped in as lenders to tenants, and given historically low interest rates this has made it affordable to access a higher and higher amount for the Jeonse payment. 

But with real estate in a bubble and loan sizes growing larger and larger, the government intervened to place certain restrictions on loan eligibility, thereby tightening supply. Given that there’s an election scheduled for the spring, however, and loan restrictions would disproportionately impact young and low-income borrowers, as Bank of Korea Governor Lee Ju-yeol explained at a recent hearing, that the restrictions have been eased — for now — banks and regulators are keeping an eye on how things are going, and still tightening credit in anticipation for an upcoming interest rate hike. 

“[The Jeonse loans] have been temporarily eased last month, but there is high probability they might return next year, so we took it into account,” Oleg Smagin, Head Of Strategy at Delio, a Korea-based digital assets software company, told Blockworks in an interview. “We see a lot of demand from our users, especially amid home rental loan restrictions set by the current Korean government last year.”

Loans, not capital gains

Korean crypto traders are also facing a hefty capital gains tax as of 2022, creating a demand for avenues to avoid the tax penalty when transferring capital from crypto to fiat. 

Smagin explains that Delio’s Blue service allows users to borrow up to 75% of the value of their coins at an interest rate between 12-16%. While this might seem expensive compared to offerings from the likes of Celsius and BlockFi. But a key difference is Korean traders want fiat, not stablecoins, which adds to the bottom line for the lender.

“There’s a low level of stablecoin adoption in Korea.”

“Stablecoin pairs are almost extinct in the local exchanges, users trade against Korean Won as users will prefer to borrow fiat rather than stablecoins,” said Smagin, explaining how this collision was unique to Korea. 

“In Korea, we also have a low percentage of unbanked population and low interest rates, but the explosive surge of prices in the real estate market forced the government to put restrictions on mortgages and home rental loans [Jeonse], making people go elsewhere to look for money,” he explained.

“That’s why we thought it’s the right time to start lending fiat against crypto.”

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