SKN | South Korea Considers Crypto Market Makers After JPYC Surges 4x

Key Points

• South Korea’s Financial Services Commission is considering a formal market-making system for digital assets after JPYC briefly traded at more than four times its yen peg on Upbit.
• Crypto market making is currently constrained by South Korea’s market-manipulation rules, which do not provide a specific exemption for liquidity providers.
• The debate comes as South Korea works on broader digital asset legislation covering stablecoins, exchanges, disclosures and internal controls.

FSC Reconsiders Crypto Market-Making Rules

South Korea’s Financial Services Commission is reviewing whether to introduce a formal market-making framework for digital assets following a sharp price distortion involving a yen-backed stablecoin on the country’s largest crypto exchange.

FSC Director of Digital Finance Policy Yoo Young-joon said the regulator would examine systems such as market making to improve the efficiency and stability of the digital asset market.

The comments followed the September listing of JPYC on Upbit, where the stablecoin temporarily traded at levels far above its underlying yen value.

Yoo also acknowledged criticism that users suffered losses following the price surge, adding that calls for greater discipline in the sector were increasing.

JPYC Surges More Than Fourfold on Upbit

Upbit opened trading for JPYC, a stablecoin designed to track the Japanese yen, on Sept. 17.

The market opened at 12 Korean won per JPYC before the price climbed to 37.6 won approximately one hour later. That represented a price more than four times the stablecoin’s underlying market value.

The sharp move was attributed to limited liquidity on the exchange.

The episode highlighted the risks that can emerge when trading begins in a market without sufficient liquidity. Even assets designed to maintain a relatively stable reference price can experience significant deviations when order books are thin and demand temporarily overwhelms available supply.

Market-Making Rules Remain Restricted

South Korea’s Virtual Asset User Protection Act does not currently provide a specific exemption allowing market makers to operate without potentially falling under the law’s market-manipulation provisions.

That regulatory structure has effectively limited professional liquidity providers from performing the same market-making functions commonly used in traditional financial markets.

The issue has been debated by South Korean researchers before the JPYC incident.

A 2024 paper cited in the source article argued that regulators had restricted crypto market making because such activity could potentially amount to market manipulation. The research also suggested that regulators could reconsider a carve-out once the market becomes sufficiently stable.

Other researchers have argued that the absence of formal market makers contributes to liquidity problems, price discrepancies and elevated volatility in South Korea’s digital asset markets.

Liquidity Remains a Broader Market Concern

The JPYC incident has revived a debate over whether stricter manipulation rules can unintentionally contribute to inefficient crypto markets.

A formal market-making system could provide designated liquidity providers with clearer rules governing how they quote prices and manage inventory, while potentially giving regulators greater visibility into their activities.

At the same time, any exemption would need to distinguish legitimate liquidity provision from trading activity intended to manipulate prices.

South Korean researchers have previously pointed to the so-called Kimchi premium, where cryptocurrency prices on domestic exchanges have at times diverged from prices in international markets, as an example of broader market inefficiencies.

Broader Crypto Legislation Remains in Development

The discussion is unfolding alongside South Korea’s effort to establish a broader regulatory framework for digital assets.

The FSC said in July that it planned to introduce a consolidated Digital Asset Basic Act covering stablecoins and other areas of the cryptocurrency market. The proposed framework is expected to address digital asset businesses, exchanges, disclosures and internal controls.

Several important issues remain unresolved, including rules governing stablecoins denominated in South Korean won.

The potential introduction of a market-making framework would therefore form part of a wider effort to determine how South Korea balances investor protection, market integrity and liquidity in its developing digital asset market.

Outlook

South Korea’s consideration of regulated crypto market making reflects the tension between preventing market manipulation and maintaining sufficient liquidity. The JPYC price spike demonstrated how thin trading conditions can create significant deviations from an asset’s reference value, while any future market-making framework would need clear safeguards governing permitted liquidity activity. The issue is likely to remain connected to the country’s broader work on digital asset and stablecoin legislation.