South Korean regulators are weighing a formal market-making system for digital assets after a stablecoin listed on the country’s largest exchange briefly traded at more than four times its peg. The Financial Services Commission said the review follows a chaotic debut for JPYC, a yen-backed token, on Upbit in September, reports Chain Articles.
Upbit opened JPYC trading on September 17 at 12 Korean won. Within an hour the price reached 37.6 won. The token is supposed to track one yen, worth roughly 9.3 won, so the spike left early buyers holding an asset at a premium that disappeared almost as fast as it formed.
The exchange attributed the surge to thin liquidity. Without professional liquidity providers standing on both sides of the order book, a rush of retail orders met a shallow market and the price ran away from fundamentals. A second token saw the same pattern the same day: PayPal’s PYUSD touched an all-time high of 1,760 won before falling back toward the 1,360-won area, per Upbit data.
No legal framework for market makers
The root cause is legal rather than technical. South Korea’s Virtual Asset User Protection Act contains no exemption for market making from its market manipulation provisions. Under that reading, a firm that quotes buy and sell prices continuously could face allegations of price manipulation, since rapid placing and cancelling of orders sits at the edge of what the law permits.
That gap has largely kept institutional liquidity providers out of Korean crypto markets. On equity exchanges, by contrast, market makers are licensed, monitored and given fee rebates to keep order books filled. Crypto has none of that scaffolding. A stablecoin listing can therefore resemble a lottery draw, with whoever gets their order in first capturing the markup before arbitrageurs arrive.
Yoo Young-joon, director of digital finance policy at the FSC, addressed the episode at a conference in Seoul. “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,” he said, according to local media.
He acknowledged the criticism that followed the listing. “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,” Yoo said. The FSC did not give a timeline for a decision on the proposal.
Fits into a wider reform push
The review lands as South Korea builds out the second stage of its digital asset legislation. In July the commission said it planned a consolidated Digital Asset Basic Act covering stablecoin issuance and circulation, rules for exchanges and service providers, disclosure requirements and internal controls.
Stablecoins are the near-term priority. JPYC secured approval from Japanese authorities as the country’s first yen-backed stablecoin earlier in the year, and its listing on a Korean venue showed how quickly a pegged asset can behave like a volatile one when local market structure is weak. A token backed one-for-one by bank deposits and Japanese government bonds should not trade at four times par, yet it did, because nobody was arbitraging the gap away.
Advocates of a licensed market-making regime argue it would do that job automatically. Firms with capital and technology quote continuous bid and ask prices and earn the spread, keeping prices tied to whatever the token references. Retail traders get orderly markets. Exchanges get incentive structures similar to what stock markets already run.
Consumer groups have taken the opposite view, arguing Korean exchanges benefit from volatility and that letting algorithmic firms dominate order books concentrates market power among a handful of practitioners. Yoo’s remarks suggest the FSC sees discipline rather than prohibition as the goal. The phrase he used, that “demands for discipline in this area are expanding,” points toward rules that allow the activity under supervision rather than a ban.
The comparison with Korea’s equity markets is instructive. There, the Korea Exchange designates liquidity providers for each listed stock and publishes their performance. Retail investors can see who is quoting, and the arrangement is audited. Crypto would need an equivalent framework, possibly run by the FSC itself or delegated to exchanges with strict reporting and capital requirements attached.
Japan offers a second reference point. When JPYC launched domestically, Japanese regulators paired the token with clear issuance standards, which helped keep its local price close to par. The Korean episode arose because a foreign-listed, pegged asset met a thin local market and no external arbitrage stepped in. A domestic market-making regime would be one way to close that gap without restricting access to foreign tokens.
Implications go beyond stablecoins. The same mechanism applies to any thinly traded crypto asset on a Korean exchange, including mid-cap tokens and newly listed projects. Retail traders chasing a surge, then selling into a collapse, is a pattern Korean regulators have tried to moderate elsewhere in finance. Market makers are the standard tool for that job, providing depth on both sides so a sudden order flow does not become a price spike.
For exchanges, the economics cut both ways. Professional market makers bring volume and reduce the reputational damage from listing fiascos, but they also demand fee rebates and lower listing costs to make their tight-margin business work. That negotiation is where much of the detail will land once the FSC sets out its position.
Nothing has been decided yet. The review sits inside a broader legislative process that has moved slowly since the first stage of the Virtual Asset User Protection Act took effect in 2024. If the FSC follows through, Korean crypto markets would gain a mechanism that every other major asset class already takes for granted. Whether it happens before the next stablecoin listing surge is the open question.