South Korea Reconsiders Crypto Market-Making Ban After Stablecoin Spike

South Korea's Financial Services Commission (FSC) is reviewing its ban on crypto market-making, a policy that has been in place since the Virtual Asset User Protection Act took effect in July 2024. The review was triggered by an incident where JPYC, a yen-pegged stablecoin listed on Upbit, spiked four times above its peg due to limited liquidity.

According to Yoo Young-jun, director of digital finance policy at the FSC, the regulator will 'review the necessity of introducing systems such as market-making activities to enhance efficiency and stability of digital asset markets.' This is seen as a significant shift in policy, as the ban on market-making was introduced to prevent manipulation of prices. However, the JPYC incident highlighted the unintended consequence of this policy, which allowed a legitimate stablecoin to trade like a meme coin for an hour.

The review of the ban on market-making is seen as a natural next step in South Korea's gradual reopening of corporate access to crypto. With 3,500 listed companies and registered professional investors eligible under the FSC's phased corporate-account plan, institutions are looking to trade crypto professionally at scale with two-sided liquidity provision.

The FSC hasn't set a timeline for the review, but experts predict that global market-making firms will start filing paperwork if the ban is lifted. The move would bring South Korea in line with other major crypto markets, such as the US and EU, which have implemented frameworks around licensing issuers and custodians rather than banning specific trading functions.