South Korea Weighs Crypto Market Makers After JPYC Spike

South Korea’s Financial Services Commission said it is considering a market-making system for digital assets, after a stablecoin linked to the value of the Japanese yen traded for as much as four times its peg on a major South Korean crypto exchange earlier this month. 

Crypto exchange Upbit opened trading of JPYC, a yen-backed stablecoin, on Sept. 17, with the market opening at 12 Korean won per JPYC before reaching a high of 37.6 Korean won just an hour later, more than four times its market value. The spike was attributed to limited liquidity on Upbit. 

“We will also review the need to introduce systems such as market-making activities to increase the efficiency and stability of the digital asset landscape,” Yoo Young-joon, director of digital finance policy at the FSC, said at a conference in Seoul on Monday, Digital Asset reported. “There were also criticisms that user losses occurred from the price surge after the JPYC listing, so demands for discipline in this area are expanding.”

South Korea’s Virtual Asset User Protection Act currently does not contain an exemption for market-making from its market manipulation provisions, preventing market makers from providing liquidity in crypto markets. The latest comments from Yoo suggest the FSC could be reconsidering this decision. 

South Korean academics have debated the market-maker carve-out before. In a 2024 peer-reviewed paper from Seoul Law Review, KB Securities researcher Lee Min Jung said regulators at the time did not allow crypto market making as it could amount to market manipulation. While Lee argued that introducing market makers would be premature due to manipulation concerns, she said regulators could consider a carve-out once the market becomes more stable. 

Researchers had called for a formal market-making framework long before the recent JPYC episode. A paper by Yoonyoung Choi from the Korbit Research Center argued that the domestic crypto market has been experiencing “serious liquidity problems” due to the absence of a formal market maker system, leading to price discrepancies and high volatility. The paper cited the Kimchi premium as an example of inefficiency in South Korea’s crypto market.

Related: South Korea drops Travel Rule threshold for crypto transfers

The potential introduction of a market-making system comes as South Korea works to establish a broader regulatory framework for its crypto industry. 

The FSC said in July that it planned to introduce a consolidated Digital Asset Basic Act covering stablecoins and the broader crypto market, including rules for digital asset businesses, exchanges, disclosures and internal controls.

However, lawmakers have yet to settle several key aspects of the legislation, including rules governing won-denominated stablecoin issuers.

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