South Korea’s Financial Services Commission (FSC) is reportedly considering the introduction of a market-making system for digital assets, a move that could significantly alter the country’s regulatory landscape for cryptocurrencies. This consideration follows a notable price surge of the JPYC stablecoin on the Upbit exchange, which highlighted issues of limited liquidity in the domestic market.
Currently, market-making activities for digital assets are restricted in South Korea under existing rules designed to prevent market manipulation. However, recent events and discussions suggest a potential shift in the FSC’s stance. Yoo Young-joon, director of digital finance policy at the FSC, indicated that the commission is reviewing the possibility of implementing market-making systems to enhance the efficiency and stability of the digital asset market.
The JPYC stablecoin, a yen-backed digital asset, experienced a significant price spike on Upbit on September 17, 2024. It reached a high of 37.6 Korean won, more than four times its pegged value, which was reportedly due to limited liquidity on the exchange. The stablecoin had opened trading at 12 Korean won on the same day.
This incident has brought renewed attention to the challenges posed by the absence of a formal market-making framework in South Korea. Yoonyoung Choi, from the Korbit Research Center, previously argued in a paper published in the Seoul Law Review that the domestic crypto market suffers from “serious liquidity problems.” According to Choi, this lack of a formal market maker system leads to price discrepancies and high volatility, citing the “Kimchi premium” as an example of market inefficiency.
Academics have previously debated the merits of allowing market makers in the South Korean crypto space. In a 2024 paper, Lee Min Jung, a researcher at KB Securities, noted that regulators at the time did not permit crypto market making due to concerns about potential market manipulation. Lee suggested that regulators might consider carve-outs for market makers once the market achieves greater stability.
The FSC’s exploration of a market-making system comes as South Korea works to establish a more comprehensive regulatory framework for its digital asset industry. In July 2024, the FSC announced plans to introduce a consolidated Digital Asset Basic Act. This proposed legislation aims to cover stablecoins and the broader crypto market, including provisions for digital asset businesses, exchanges, disclosures, and internal controls. However, key aspects of this act, such as rules governing issuers of won-denominated stablecoins, are still under discussion among lawmakers.
While the FSC is considering market-making systems, uncertainties remain regarding the specifics and timeline of any potential regulatory changes. The extent to which lawmakers will finalize the Digital Asset Basic Act also remains to be seen. The reported consideration by the FSC suggests a potential evolution in South Korea’s approach to digital asset regulation, aiming to balance market stability and investor protection with the need for efficient and liquid markets.
Why This Matters
The materials describe a narrow update: Following a significant price spike of the JPYC stablecoin on the Upbit exchange, South Korea’s FSC is reviewing its stance on crypto market making, which is currently restricted under market manipulation rules. Whether South Korea will formally introduce a market-making system for digital assets.
Broader Context
Source materials place the factual news in this context: Crypto market making is effectively restricted under South Korea’s manipulation rules.
