South Korea's Financial Services Commission said it is considering a market-making system for digital assets after JPYC, a yen-backed stablecoin, traded for as much as four times its peg on the Upbit exchange earlier this month.
Upbit began trading JPYC on September 17, with the market opening at 12 Korean won per token before reaching 37.6 Korean won within an hour. The sharp spike was attributed to limited liquidity on the exchange, resulting in user losses.
Yoo Young-joon, director of digital finance policy at the FSC, said at a Seoul conference on Monday that regulators will "review the need to introduce systems such as market-making activities to increase the efficiency and stability of the digital asset landscape." Yoo noted that criticism over user losses from the price surge has expanded demands for regulatory discipline.
Current Regulatory Barriers
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 FSC's latest comments suggest the agency could be reconsidering this restriction.
Academic and Industry Perspective
South Korean researchers have previously called for a formal market-making framework. A 2024 paper from Seoul Law Review noted that regulators had not allowed crypto market making due to manipulation concerns, though the author suggested a carve-out could be considered once the market becomes more stable.
Research from the Korbit Research Center argued that the domestic crypto market has experienced "serious liquidity problems" due to the absence of a formal market maker system, leading to price discrepancies and high volatility.
Broader Regulatory Development
The potential introduction of a market-making system comes as South Korea develops a broader regulatory framework for its crypto industry. The FSC announced in July plans 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.
Lawmakers have yet to settle several key aspects of the legislation, including rules governing won-denominated stablecoin issuers.
