JPYC Price Surge Prompts South Korean Regulators to Reconsider Market Maker Rules
Following a stablecoin trading incident where JPYC reached four times its intended value on Upbit, South Korean authorities are revisiting their restrictive stance on cryptocurrency market making activities.
The Financial Services Commission of South Korea has announced it is exploring the implementation of a market-making framework for digital assets, following an incident earlier this month where a Japanese yen-pegged stablecoin surged to nearly quadruple its intended value on one of the country's largest cryptocurrency exchanges.
On Sept. 17, cryptocurrency platform Upbit launched trading for JPYC, a stablecoin backed by the Japanese yen. Trading commenced at 12 Korean won per JPYC, but within a single hour, the price skyrocketed to 37.6 Korean won—exceeding four times its actual market value. Industry observers pointed to insufficient liquidity on the Upbit platform as the primary cause of this dramatic price deviation.
"We will also review the need to introduce systems such as market-making activities to increase the efficiency and stability of the digital asset landscape," Yoo Young-joon, director of digital finance policy at the FSC, said at a conference in Seoul on Monday, Digital Asset reported. "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."
Under South Korea's current Virtual Asset User Protection Act, market-making activities are essentially prohibited as the legislation lacks a specific exemption from its market manipulation clauses, effectively blocking market makers from supplying liquidity to cryptocurrency markets. Yoo's recent statements indicate that the FSC may be reassessing this regulatory approach.
The question of whether to allow market makers in South Korea's crypto sector has been a topic of discussion among local academics previously. In a peer-reviewed 2024 publication in Seoul Law Review, KB Securities researcher Lee Min Jung noted that regulatory authorities had previously declined to permit crypto market making due to concerns it could constitute market manipulation. While Lee contended that introducing market makers would be premature given manipulation risks, she acknowledged that regulators might consider creating an exemption after the market achieves greater stability.
Academic experts had advocated for an official market-making structure well ahead of the recent JPYC incident. Research conducted by Yoonyoung Choi from the Korbit Research Center highlighted that South Korea's domestic cryptocurrency market has been suffering from "serious liquidity problems" stemming from the lack of an official market maker framework, resulting in price disparities and elevated volatility. The research referenced the Kimchi premium phenomenon as evidence of inefficiency within South Korea's crypto ecosystem.
The possible adoption of a market-making framework arrives as South Korea continues developing a comprehensive regulatory structure for its cryptocurrency sector.
In July, the FSC announced plans to introduce a comprehensive Digital Asset Basic Act that would encompass stablecoins and the wider crypto marketplace, including regulations for digital asset enterprises, trading platforms, disclosure requirements and internal control mechanisms.
Nevertheless, legislative officials have not yet finalized several critical components of the proposed legislation, including regulations that would govern issuers of stablecoins denominated in Korean won.