South Korea’s Financial Services Commission is considering whether to allow a market-making system for digital assets after JPYC, a stablecoin linked to the Japanese yen, traded at as much as four times its peg on a major local exchange earlier this month.
JPYC spiked shortly after trading opened on Upbit
According to Cointelegraph, Upbit opened trading for JPYC on Sept. 17. The market started at 12 Korean won per token, then rose to 37.6 won within an hour, putting the price at more than four times its market value. The jump was attributed to limited liquidity on Upbit.
JPYC is a yen-backed stablecoin. The sharp move has pushed regulators to revisit how South Korea treats market making in crypto trading.
FSC says it will review whether market-making should be introduced
Digital Asset reported that Yoo Young-joon, director of digital finance policy at the FSC, said at a conference in Seoul on Monday: “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.”
He added: “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.”
Current law offers no exemption for market makers
South Korea’s Virtual Asset User Protection Act does not include an exemption for market-making under its market manipulation provisions. In practice, that prevents market makers from providing liquidity in crypto markets. Yoo’s latest remarks indicate the FSC could be reconsidering that position.
Academics had already debated a carve-out
The question of whether market-making should be treated differently has been discussed in South Korean academic circles before. In a 2024 peer-reviewed paper published in Seoul Law Review, KB Securities researcher Lee Min Jung said regulators did not allow crypto market making at the time because the activity could amount to market manipulation.
Lee argued that introducing market makers would still be premature because of manipulation concerns, but said regulators could consider a carve-out once the market becomes more stable.
Researchers had flagged liquidity problems before the JPYC episode
Calls for a formal market-making framework predated the recent JPYC move. In a paper from the Korbit Research Center, Yoonyoung Choi wrote that the domestic crypto market has faced “serious liquidity problems” because there is no formal market maker system, resulting in price discrepancies and high volatility.
The paper cited the Kimchi premium as one example of inefficiency in South Korea’s crypto market.
Discussion comes as South Korea drafts broader crypto rules
The possible introduction of a market-making system is being discussed while South Korea works on a broader regulatory framework for the crypto industry.
The FSC said in July that it planned to introduce a consolidated Digital Asset Basic Act covering stablecoins and the wider crypto market, including rules for digital asset businesses, exchanges, disclosures and internal controls.
Lawmakers, however, have yet to settle several key parts of the legislation, including rules governing issuers of won-denominated stablecoins.