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South Korea weighs crypto market makers after JPYC trades at 4 times peg
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South Korea’s Financial Services Commission is considering whether to allow professional crypto market makers to operate in the domestic market, a shift that could reshape how thinly traded digital assets are priced. The idea surfaced after JPYC, a stablecoin linked to the Japanese yen, surged to as much as four times its intended value during its Upbit debut. FSC digital finance policy director Yoo Young-joon said the regulator would also review market-making mechanisms to improve the efficiency and stability of the digital-asset market. The comments signal a policy review rather than an approved program, and no implementation timetable has been announced.
Upbit began trading JPYC on Sept. 17 at 12 Korean won per token, according to the report. Within about an hour, the price climbed to 37.6 won, despite the asset’s design tying it to the yen and its expected economic value. The exchange attributed the spike to limited liquidity, illustrating how a small amount of buying or selling can produce an outsized move on a new listing. It also caused losses for buyers who entered near the peak and prompted broader calls for stronger investor safeguards.
Under the Virtual Asset User Protection Act, South Korea’s market-manipulation provisions currently contain no carve-out for legitimate liquidity providers. As a result, a designated market maker could face liability even while quoting two-way prices, replenishing order books and reducing bid-ask spreads. That legal uncertainty makes it difficult for exchanges to recruit firms able to support new or low-volume tokens. Yoo’s comments suggest the FSC is willing to revisit whether the restriction remains appropriate for a maturing crypto market.
Regulatory concern is not limited to abstract manipulation risk. Yoo said criticism had intensified because users suffered losses after JPYC’s opening surge, increasing demands for discipline in the listing process. In a 2024 peer-reviewed Seoul Law Review paper, KB Securities researcher Lee Min Jung said banning market making could itself hinder efficient pricing, while warning that a carve-out would be premature until markets were more mature. Lee nevertheless said regulators could reconsider a market-maker exemption after stability improved, showing that the debate is shifting from blanket prohibition toward conditional oversight.
Those calls predate the JPYC incident. In research cited by Digital Asset, Yoonyoung Choi of the Korbit Research Center argued that South Korea’s crypto market has serious liquidity problems because it lacks a formal market-maker system. The resulting fragmented order books can produce price discrepancies, wider spreads and greater volatility, particularly when exchanges list a new asset with little depth. Choi also cited the Kimchi premium—the tendency for Korean crypto prices to exceed overseas prices—as evidence of structural market inefficiency. A regulated liquidity program could potentially narrow those gaps by keeping quotes active and closer to global reference prices.
For investors, the episode demonstrates both the risks and potential benefits of specialist liquidity providers. A market-making system could help exchanges manage volatile listings, support smoother settlement and reduce brief price dislocations such as JPYC’s fourfold move. For crypto businesses, clearer safe-harbor rules could encourage established trading firms to enter a market that has historically struggled to attract traditional liquidity providers. However, an exemption would also increase the need for surveillance, disclosure and strict limits on the quantity or direction of trades so that authorized market makers cannot influence prices.
The review arrives as South Korea works on a broader overhaul of its crypto rules. In July, the FSC said it planned to introduce a consolidated Digital Asset Basic Act covering stablecoins, exchanges, disclosures, internal controls and other digital-asset businesses. Lawmakers have yet to settle several important elements, including requirements for issuers of won-denominated stablecoins. Any market-making framework would likely need clear eligibility standards, operational reporting and anti-manipulation controls to complement that legislation. The immediate outlook is therefore one of consultation and legislative uncertainty, but the JPYC surge has given regulators a concrete reason to reconsider whether stricter restrictions are undermining market stability rather than protecting users.
