South Korea considers crypto market makers after stablecoin volatility
Regulators rethink market-making ban following JPYC's 4x price spike on Upbit.
1Stablecoin volatility triggers review
JPYC, a yen-pegged stablecoin, traded at four times its value on Upbit shortly after its September 17 listing, opening at 12 won and spiking to 37.6 won within an hour. The Financial Services Commission attributed this to limited liquidity, prompting reconsideration of South Korea's market-making restrictions. Current regulations lack exemptions for market-making activities under manipulation rules.
2Regulatory shift underway
FSC director Yoo Young-joon announced potential market-making systems to improve digital asset market stability, responding to user losses from the JPYC incident. South Korea's Virtual Asset User Protection Act currently prohibits market-making activities entirely. The reconsideration marks a significant potential policy shift in one of crypto's most regulated markets.
3Academic debate precedes event
KB Securities researcher Lee Min Jung's 2024 paper noted regulators previously rejected crypto market-making due to manipulation concerns. While cautioning against premature implementation, Lee suggested future reconsideration as markets mature. Korbit Research Center's Yoonyoung Choi had earlier identified serious liquidity problems without market makers, citing the Kimchi premium as evidence of market inefficiency.
4Broader regulatory context
The market-making discussion occurs alongside South Korea's development of a comprehensive Digital Asset Basic Act, announced in July 2026. The legislation aims to cover stablecoins, exchanges, disclosures and controls. Key unresolved issues include regulations for won-denominated stablecoin issuers, indicating the complexity of establishing a full regulatory framework.
5Market impact of restrictions
Without formal market makers, South Korean crypto exchanges experience higher volatility and price discrepancies. The JPYC incident demonstrated how limited liquidity can lead to extreme price movements, particularly for newly listed assets. These conditions may disadvantage retail investors during periods of rapid price change.
6Implementation challenges
Any market-making framework must balance liquidity provision with manipulation prevention. The FSC faces the challenge of designing rules that allow legitimate market-making while maintaining strong protections against abusive practices. This requires careful definition of permitted activities and oversight mechanisms.
7Industry implications
A market-making system could significantly improve trading conditions on South Korean exchanges, potentially attracting more institutional participation. However, the regulatory uncertainty surrounding stablecoins and other digital assets creates implementation challenges that may delay tangible improvements in market liquidity.
8Global regulatory alignment
South Korea's reconsideration reflects broader global debates about crypto market structure. As jurisdictions worldwide develop frameworks for digital assets, South Korea's approach to market-making could influence regulatory standards in other markets facing similar liquidity and stability challenges.