South Korea considers crypto market-making after JPYC spike

South Korea's Financial Services Commission is considering a market-making system for digital assets after JPYC traded at more than four times its market value on Upbit. Upbit opened trading in JPYC on Sept. 17. The market opened at 12 Korean won per JPYC. JPYC reached a high of 37.6 Korean won one hour later. The spike was attributed to limited liquidity on Upbit. Yoo Young-joon, the FSC's director of digital finance policy, said, “We will also review the need to introduce systems such as market-making activities.” Yoo said the systems would increase the efficiency and stability of the digital asset landscape. Yoo said there had been criticism that users suffered losses from the price surge after the listing. He said demands for discipline in this area were expanding. South Korea's Virtual Asset User Protection Act does not exempt market-making from its market manipulation provisions. The law prevents market makers from providing liquidity in crypto markets. Yoo's comments suggest that the FSC could be reconsidering this position. A 2024 peer-reviewed paper in Seoul Law Review discussed a possible market-maker carve-out. KB Securities researcher Lee Min Jung said regulators at the time did not allow crypto market-making because it could amount to market manipulation. Lee argued that introducing market makers would be premature because of manipulation concerns. Lee said regulators could consider a carve-out once the market becomes more stable. Yoonyoung Choi of the Korbit Research Center argued that the domestic crypto market had serious liquidity problems because it lacked a formal market-maker system. Choi's paper linked the lack of a formal system to price discrepancies and high volatility. The paper cited the Kimchi premium as an example of inefficiency in South Korea's crypto market. In July, the FSC said it planned to introduce a consolidated Digital Asset Basic Act covering stablecoins and the broader crypto market. The planned act would include rules for digital asset businesses. It would also include rules for exchanges. It would set disclosure rules. It would cover internal controls. Lawmakers have yet to settle several key aspects of the legislation. Those aspects include rules for issuers of won-denominated stablecoins.