South Korea’s Financial Services Commission (FSC) announced it is considering the introduction of a market-making system for digital assets. This move follows an incident where JPYC, a yen-backed stablecoin, traded at four times its peg on the Upbit exchange earlier this month. The spike occurred after Upbit opened trading of JPYC on Sept. 17, with prices jumping from 12 Korean won to a high of 37.6 Korean won within an hour due to limited liquidity.
Yoo Young-joon, director of digital finance policy at the FSC, stated that regulators are reviewing the need for such systems to enhance efficiency and stability in the digital asset landscape. He noted expanding demands for discipline following user losses caused by the price surge. Currently, South Korea’s Virtual Asset User Protection Act does not exempt market-making activities from market manipulation provisions, effectively preventing formal market makers from operating. Academics and researchers have previously highlighted serious liquidity problems and price discrepancies, such as the Kimchi premium, resulting from the absence of a formal market maker framework.
The FSC’s reconsideration of market-making rules addresses a structural vulnerability in South Korea’s crypto infrastructure, where the lack of authorized liquidity providers has led to extreme volatility and potential investor harm. By acknowledging that current prohibitions under the Virtual Asset User Protection Act hinder market stability, regulators signal a shift toward balancing strict anti-manipulation enforcement with the operational necessity of deepening liquidity. This development suggests that the regulatory stance may evolve from blanket restrictions to targeted exemptions, aiming to mitigate price distortions like those seen in the JPYC listing without compromising consumer protection standards.
Institutional adoption and broader market structure improvements depend on resolving these liquidity constraints, which have long been cited by researchers as causes for inefficiencies such as the Kimchi premium. As lawmakers continue to draft the Digital Asset Basic Act, the integration of a compliant market-making framework could serve as a critical component for stabilizing the domestic exchange environment. However, the transition requires careful calibration to ensure that new liquidity mechanisms do not inadvertently create avenues for manipulation, necessitating robust oversight protocols alongside any legal carve-outs.
