South Korea Considers Regulated Market-Making for Digital Assets Amid Stability Concerns

South Korea's Financial Services Commission (FSC) is considering introducing a regulated market-making system for digital assets, following a recent price surge in Upbit's yen-pegged stablecoin JPYC.

The trading of JPYC saw a dramatic move to over four times its intended value earlier this month, with limited liquidity cited as a key driver of the spike. According to reporting on the episode, the sharp move was linked to thin order books and market depth on Upbit at the time.

Yoo Young-joon, director of digital finance policy at the FSC, said the commission would review the need to introduce systems such as market-making activities to increase efficiency and stability in South Korea's digital asset landscape. This comes amid renewed scrutiny of how South Korea handles market stability and user protection in crypto.

The existing law does not currently carve out market makers from market manipulation rules, which means that market makers are constrained in their ability to provide liquidity, even when more consistent liquidity could help reduce the kinds of dislocations seen in the JPYC episode.