Korean Won-der Why: FSC Mulls Market Makers After JPYC Goes 4× Par on Upbit 🇰🇷

South Korea's Financial Services Commission said it is considering a market-making system for digital assets, following an episode earlier this month in which JPYC, a yen-backed stablecoin, traded at roughly four times its intended value on the country's largest exchange. Crypto exchange Upbit opened trading of JPYC on Sept. 17, with the market starting at 12 Korean won per JPYC before reaching a high of 37.6 Korean won just an hour later, more than four times its market value. The spike was attributed to limited liquidity on Upbit.

Speaking at a conference in Seoul on Monday, Yoo Young-joon, director of digital finance policy at the FSC, said the regulator will "review the need to introduce systems such as market-making activities to increase the efficiency and stability of the digital asset landscape." Yoo added that "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," according to Digital Asset.

South Korea's Virtual Asset User Protection Act does not currently contain an exemption for market-making from its market manipulation provisions, preventing market makers from providing liquidity in crypto markets. Yoo's remarks suggest the FSC could revisit that position. In a 2024 peer-reviewed paper from the Seoul Law Review, KB Securities researcher Lee Min Jung wrote that regulators at the time did not allow crypto market making because it could amount to market manipulation, but added that a framework could be considered once the market becomes more stable. A separate paper by Yoonyoung Choi from the Korbit Research Center argued that the domestic crypto market has been experiencing "serious liquidity problems" due to the absence of a formal market-maker system, citing the Kimchi premium as an example of inefficiency.

The potential introduction of market-making rules comes as South Korea develops a broader regulatory framework for digital assets. 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 have yet to settle several key aspects of the legislation, including rules governing won-denominated stablecoin issuers, and any market-making carve-out would be considered as part of that process.