South Korea Eyes Crypto Market Makers After JPYC Spikes to 4x Its Yen Peg on Upbit

Key Takeaways:

• The South Korea Financial Services Commission is considering introducing regulated crypto market making.
• The conversation continues with an abrupt price rally for JPYC on Upbit, the stablecoin that is backed by the Japanese yen, which has risen well up from its target price.
• The proposed measures may be part of a larger bill on the second phase of digital asset-related legislation introduced by South Korea.

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South Korea is rethinking its position on crypto market makers, as a recent price anomaly in the stablecoins market brought up new worries about liquidity and the safety of investors.

The Financial Services Commission, or FSC, said Sept. 28 that it will examine whether formal market-making rules could improve the efficiency and stability of the country’s digital asset market.

The issue took urgency after extreme price swings on JPYC, a Japanese yen-backed stablecoin, after it was added to South Korean exchange Upbit. JPYC briefly priced as much as more than four times of the reference yen due to the shallow order books of an ostensibly stable asset.

The FSC’s director of digital finance policy, Yoo Young-joon, said that the regulators would narrow down market efficiency and stability systems, including market-making activities. He also cited the complaints that users had lost money after the JPYC price spike.

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Conversely, South Korea’s existing Virtual Asset User Protection Act does not exempt crypto market makers. In turn, that can render traditional market-making structures hard to play within rules aimed at unforeseen dealing or odd manipulation.

A formal carve-out has the potential to turn all that around if it establishes a clear separation between legitimate liquidity provision and manipulation; the FSC hasn’t yet announced what its regulation would look like, however.

A broader regulatory reform is being discussed, with market making being just a piece of it.

An abnormal transaction monitoring function, token listing support and major exchange functions that include trade execution might require transition from private to public self-regulation according to Yoo.

The FSC has also been talking about increased governability and requirements for exchange’s internal control and financial capacity. The commission in March announced it would be considering its proposed Digital Asset Basic Act as part of South Korea’s crypto legislation as its second step.

The framework additionally could broaden the industry beyond exchange-based businesses by providing more definition in the custody, brokerage, asset management and advisory services.

Also on the regulatory docket are rules for stablecoins denominated in traditional currencies, domestic rules for the issuance and disclosure of digital tokens.

The FSC believes that a wider legislative landscape will enhance transparency and offer companies greater avenues for digital asset payments, treasury and savings investments.

But, there are some details that aren’t sorted out. In August, the commission announced its ongoing discussions with the second stage of the digital asset law and that some requirements for exchange ownership had yet to be settled.

For crypto traders, the market-making debate now puts liquidity directly at the center of South Korea’s next regulatory phase.

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