South Korea weighs crypto market makers regime

TLDR

South Koreas top financial regulator is studying whether to allow regulated crypto market makers after a yen stablecoin spiked to four times its peg on Upbit.

1. The Financial Services Commission (FSC) is reviewing a formal market?making system, but current law still effectively bans crypto market makers under market manipulation rules.
2. A regulated regime could improve liquidity, narrow spreads and reduce price distortions such as the Kimchi premium, though it raises fresh concerns about manipulation and fairness.
3. The debate will feed into South Koreas broader Digital Asset Basic Act, so the key signals to watch are legislative carve?outs for market making and stablecoin trading rules.

Deep Dive

1. FSC Review, Not Yet Policy

Reports from Cointelegraph and CryptoNews say the FSC is considering introducing a market?making framework for digital assets after JPYC, a yen?pegged stablecoin, traded up to four times its peg on Upbit on 17 September, jumping from 12 to 37.6 won within an hour due to thin liquidity on the order book.

Under the Virtual Asset User Protection Act, market making is not exempt from market manipulation provisions, meaning firms that provide continuous two?sided quotes in crypto can be treated as manipulators, which has effectively banned formal market makers so far.

FSC digital finance policy director Yoo Young?joon told a Seoul conference that regulators will review the need to introduce systems such as market?making activities to increase efficiency and stability, but they have not announced any exemption, timeline or pilot program yet.

2. Liquidity, Premiums And User Risk

The JPYC spike highlighted what happens when a new asset lists into a shallow order book: aggressive buying can push prices far from fundamentals, causing user losses and reputational risk for exchanges and regulators.

Researchers such as KB Securities Lee Min Jung and Korbits Yoonyoung Choi have argued that the lack of formal market makers has produced serious liquidity problems in Koreas domestic crypto market, contributing to price gaps and local phenomena like the Kimchi premium where Korean prices diverge from global ones.

A regulated market?maker regime could tighten spreads and reduce these distortions by ensuring continuous bids and offers, but regulators still need strong surveillance to distinguish legitimate liquidity provision from wash trading, ramping and other unfair tactics.

3. Next Steps And Signals

The FSCs review is tied to a wider legislative agenda, including a planned Digital Asset Basic Act that will cover stablecoins, exchange obligations, disclosures and internal controls, with JPYCs volatility now a case study for why liquidity rules matter.

Key signals to watch include draft language that creates explicit carve?outs for licensed market makers, requirements for exchange capital and risk controls, and any special terms for won?denominated stablecoin listings.

For global crypto users, South Koreas choices will help show whether major markets can reconcile strict manipulation laws with deep, professional liquidity, which may influence how local prices track global benchmarks.

Conclusion

South Korea is not lifting its market?making ban yet, but the JPYC episode has pushed regulators to reconsider how crypto liquidity should be provided and supervised. If lawmakers can design clear exemptions with strong oversight, Korean exchanges could gain more stable order books and fewer extreme price dislocations, making their markets more attractive and less fragile for both local and international participants.