South Korea Considers Crypto Market Makers After JPYC Trades at Four Times Its Peg
South Korea's Financial Services Commission (FSC) is considering implementing a market-making system for digital assets following the recent incident when JPYC, a yen-backed stablecoin, traded at over four times its pegged value on a major local cryptocurrency exchange. The dramatic price surge, linked to limited liquidity on the platform, has raised concerns over market manipulation and user losses in the crypto landscape.
JPYC’s Dramatic Price Surge on Upbit Exchange
On September 15, 2024, the South Korean crypto exchange Upbit listed JPYC, a yen-backed stablecoin, at an opening price of about 12 Korean won per JPYC. However, within one hour, the price soared to 37.6 Korean won, exceeding its peg by more than four times. The surge was attributed to limited liquidity on the exchange, creating a shortage of available tokens for trading.
Regulator’s Response and Consideration of Market-Making Mechanisms
At a Seoul conference on September 16, Yoo Young-joon, director of digital finance policy at the FSC, indicated that the regulator is contemplating the introduction of market-making activities to improve efficiency and stability in the digital asset market. Previously, the Virtual Asset User Protection Act did not exempt market makers from market manipulation rules, limiting their capacity to provide liquidity. Following the JPYC incident, calls for regulatory discipline to protect user interests have intensified.
Academic Perspectives and Regulatory Challenges
South Korean academics have long debated instituting a formal market-making framework. In a 2024 peer-reviewed paper, KB Securities’ Lee Min Jung observed that permitting crypto market making was deemed premature due to manipulation risks but suggested reconsideration once the market matures. Similarly, researcher Yoonyoung Choi from Korbit Research Center highlighted serious liquidity issues domestically, citing price discrepancies and volatility—including the Kimchi premium—as evidence of market inefficiencies needing structured market making.
Future of Digital Asset Legislation in South Korea
In July 2024, the FSC announced plans to enact a comprehensive Digital Asset Basic Act, covering stablecoins and broader crypto market regulation—encompassing business operations, exchanges, disclosures, and internal controls. However, key elements, such as governance for won-pegged stablecoin issuers, remain unsettled among lawmakers, creating ongoing uncertainty in the regulatory environment.
Why it matters
The JPYC price spike on a South Korean exchange exposed liquidity shortages in the domestic crypto market and highlighted regulatory gaps. The FSC’s consideration of introducing a market-making system marks a potentially crucial step toward enhancing market stability and trading efficiency, while safeguarding user interests from manipulative practices and extreme volatility. This development drives South Korea to refine its legal framework, significantly impacting the future growth and maturity of the nation's entire cryptocurrency industry.
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