South Korea’s regulators are weighing the introduction of crypto market makers after a yen‑backed stablecoin, JPYC, traded at more than four times its intended peg on Upbit.
The incident exposed severe liquidity gaps in the domestic crypto market, sparking debate over whether a formal market‑making framework is needed to stabilize prices and protect users.
Stablecoin Pegged Quadruple in Price?
Crypto exchange Upbit listed JPYC, a stablecoin pegged to the Japanese yen on September 17. At launch, JPYC should have traded near 8.8 Korean won per token, but prices surged to 37.6 won within an hour—over four times its peg.
Trading volumes exploded, with ₩242.7 billion changing hands in the first seven hours, making Korea the largest global market for JPYC. Arbitrage eventually restored the peg, but the episode triggered criticism that users suffered losses due to extreme volatility.
South Korea’s Financial Services Commission (FSC) acknowledged the problem, noting that the country’s Virtual Asset User Protection Act currently prohibits market‑making activities because they could be construed as manipulation.
However, FSC officials now say they will review whether to introduce a carve‑out for market makers to improve liquidity and stability.
Why the Debate Matters
The JPYC incident emphasizes structural weaknesses in South Korea’s crypto market.
Without market makers, liquidity is thin, and prices can deviate sharply from fair value. This creates risks for retail investors, undermines confidence, and exposes exchanges to reputational damage.
It also depicts a paradox: while Korea has yet to approve a won‑based stablecoin due to legislative delays, foreign stablecoins like JPYC are capturing domestic liquidity and consumer spending.
JPYC is already integrated into apps like LINE’s Unifi, where users can buy gift certificates or earn cashback at clinics, raising concerns about money laundering and regulatory gaps.
Framework Gaps
Market makers play a critical role in traditional finance by providing liquidity, narrowing spreads, and stabilizing prices. Their absence in Korea’s crypto market has led to inefficiencies such as the “Kimchi premium,” where crypto prices in Korea trade significantly above global averages.
Academic studies have long argued that a formal market‑making framework could reduce volatility and improve efficiency.
The FSC’s reluctance stems from concerns that market‑making could be abused for manipulation. Yet the JPYC spike demonstrates that prohibiting market makers may cause greater harm by leaving markets vulnerable to extreme swings.
A carefully designed framework—with strict oversight, transparency, and limits on market‑maker activities—could balance liquidity needs with investor protection.
South Korea’s consideration of crypto market makers reflects a pivotal moment in its regulatory evolution. The JPYC peg crisis exposed the dangers of thin liquidity and the absence of stabilizing mechanisms.
Regulators now face a choice: maintain strict prohibitions and risk further volatility, or design a controlled market‑making framework that balances liquidity with investor protection.
Korea’s crypto market cannot remain in limbo, as demand for stablecoins grows and foreign issuers capture domestic liquidity. Policymakers must act decisively to ensure stability, fairness, and competitiveness in the digital‑asset ecosystem.
