South Korea weighs crypto market makers after JPYC peg spike
The FSC is reviewing a market-making system for digital assets after yen stablecoin JPYC traded at four times its peg on Upbit, exposing liquidity gaps in Korean crypto markets.
Key points
- Upbit opened JPYC trading on Sept. 17 at 12 Korean won, with the price hitting 37.6 won an hour later, over four times its peg.
- FSC digital finance policy director Yoo Young-joon said the regulator will review market-making systems to improve efficiency and stability.
- South Korea's Virtual Asset User Protection Act has no market-making exemption from its manipulation rules, blocking liquidity providers.
- The FSC said in July it planned a consolidated Digital Asset Basic Act covering stablecoins, exchanges, disclosures and internal controls.
- Lawmakers have yet to settle key parts of the legislation, including rules for won-denominated stablecoin issuers.
South Korea's Financial Services Commission is considering a market-making system for digital assets after a yen-backed stablecoin traded at up to four times its peg on a major local exchange, CoinTelegraph reports. The review follows a sharp price spike in JPYC on Upbit earlier this month, which regulators linked to thin liquidity.
Upbit opened JPYC trading on Sept. 17 at 12 Korean won per token. Within an hour the price reached 37.6 Korean won, more than four times its market value, according to the report. The surge was attributed to limited liquidity on the exchange.
Yoo Young-joon, director of digital finance policy at the FSC, said at a conference in Seoul on Monday that the regulator would review the need for systems such as market-making activities to raise the efficiency and stability of the digital asset landscape. He said criticism that users suffered losses from the post-listing price surge was fuelling demands for discipline in this area, Digital Asset reported.
JPYC spike on Upbit
South Korea's Virtual Asset User Protection Act currently contains no exemption for market-making from its market manipulation provisions. That prevents market makers from providing liquidity in crypto markets. Yoo's comments suggest the FSC may be reconsidering that position.
The carve-out has been debated by South Korean academics before. In a 2024 peer-reviewed paper in Seoul Law Review, KB Securities researcher Lee Min Jung said regulators at the time did not permit crypto market making because it could amount to market manipulation. She argued that introducing market makers would be premature given manipulation concerns, but said a carve-out could be considered once the market becomes more stable.
Researchers had called for a formal market-making framework well before the JPYC episode. A paper by Yoonyoung Choi of the Korbit Research Center argued the domestic crypto market suffered serious liquidity problems because no formal market maker system existed, leading to price discrepancies and high volatility. The paper cited the Kimchi premium as an example of inefficiency in South Korea's crypto market.
Regulator reconsiders rules
The possible market-making system comes as South Korea builds a wider regulatory framework for crypto. The FSC said in July it planned a consolidated Digital Asset Basic Act covering stablecoins and the broader market, including rules for digital asset businesses, exchanges, disclosures and internal controls. Lawmakers have yet to settle several key aspects, including rules for won-denominated stablecoin issuers.