Key facts
- South Korea's Financial Services Commission is considering a market-making system for digital assets.
- The JPYC stablecoin, linked to the Japanese yen, traded at 37.6 Korean won on Upbit, over four times its intended value.
- The price surge of JPYC was attributed to limited liquidity on the Upbit exchange.
- South Korea's current Virtual Asset User Protection Act does not exempt market-making from market manipulation rules.
- Academics have previously debated introducing market makers, citing concerns over market manipulation and liquidity issues.
South Korea's Financial Services Commission (FSC) is contemplating the introduction of a market-making system for digital assets, a move that could address liquidity issues and price volatility in the country's crypto markets. This consideration comes after the JPYC, a stablecoin pegged to the Japanese yen, experienced a dramatic price spike on the Upbit exchange earlier this month, trading at over four times its intended value. The surge was attributed to insufficient liquidity on the platform.
Yoo Young-joon, director of digital finance policy at the FSC, indicated that regulators would review the necessity of market-making to enhance the efficiency and stability of the digital asset landscape. He acknowledged criticisms regarding user losses stemming from the JPYC price surge, which has amplified demands for stricter oversight in this area.
Currently, South Korea's Virtual Asset User Protection Act prohibits market-making activities by classifying them under market manipulation rules. However, Yoo's statements suggest a potential reconsideration of this stance. Academic research has previously highlighted significant liquidity problems in the South Korean crypto market due to the absence of a formal market maker system, leading to price discrepancies and high volatility, exemplified by the 'Kimchi premium'. Researchers have long called for a formal framework to mitigate these issues.