South Korea Considers Crypto Market Makers After Stablecoin Price Spike
Regulators rethink rules after JPYC surges
South Korea's Financial Services Commission (FSC) is considering the introduction of a formal market-making system for digital assets. This review follows a recent event where a stablecoin linked to the Japanese yen traded at four times its intended value on a major local exchange.
A stablecoin is a type of cryptocurrency designed to maintain a fixed value, often tied to a fiat currency like the US dollar or the Japanese yen. The current situation has prompted officials to look for ways to improve the stability and efficiency of the country's crypto landscape.
JPYC price jumped on limited supply
- Crypto exchange Upbit began trading JPYC, a yen-backed stablecoin, on September 17.
- The token opened at 12 Korean won but rose to 37.6 won within an hour.
- This peak represented more than four times the coin's expected pegged value.
- Officials attributed the sharp price increase to limited liquidity, meaning there were not enough buyers and sellers to keep the price stable.
FSC director calls for review
Yoo Young-joon, the director of digital finance policy at the FSC, addressed the issue during a conference in Seoul. He stated that the commission would review the need for systems like market-making activities. These activities involve specialized participants who continuously buy and sell assets to ensure there is always liquidity available.
Yoo noted that there have been criticisms regarding user losses caused by the sudden price surge after the JPYC listing. Consequently, demands for stricter discipline in this area are growing.
Current laws block market makers
Under South Korea's Virtual Asset User Protection Act, there is currently no exemption for market-making from rules against market manipulation. This legal gap effectively prevents professional market makers from operating in the crypto space, as their actions could be interpreted as manipulating prices.
The comments from Yoo suggest the FSC may be reconsidering this stance. Academics have debated this issue previously. A 2024 paper by researcher Lee Min Jung argued that while market making could help, it was premature due to manipulation risks until the market stabilizes.
Researchers warned of liquidity issues
Experts had called for a formal market-making framework before this recent incident. A paper by Yoonyoung Choi from the Korbit Research Center highlighted "serious liquidity problems" in the domestic market due to the lack of such a system.
The research pointed to price discrepancies and high volatility as direct results. It also cited the "Kimchi premium," a phenomenon where crypto prices in South Korea are higher than global averages, as an example of market inefficiency.
Broader regulations still pending
The push for market-making rules coincides with efforts to create a wider regulatory framework. In July, the FSC announced plans for a consolidated Digital Asset Basic Act. This law would cover stablecoins, exchanges, disclosure requirements, and internal controls.
However, lawmakers have not yet finalized key parts of this legislation, including specific rules for issuers of won-denominated stablecoins.
What remains uncertain
While the FSC has signaled a willingness to review market-making systems, no specific timeline or new rules have been officially adopted yet. The outcome depends on how regulators balance the need for liquidity against the risk of market manipulation.
Newisty Editorial Team covers technology, cryptocurrency, digital products, online platforms, developer tools and the wider digital economy. Our content is researched from official sources, company announcements, public documentation, market data and other primary or reputable sources. Articles are reviewed and edited before publication for clarity, accuracy and useful context.