South Korean regulators are reconsidering their stance on cryptocurrency market makers after a Japanese yen-pegged stablecoin briefly traded at more than four times its intended value on a major domestic exchange, exposing gaps in how the market handles liquidity.
The JPYC Anomaly
Earlier this month, JPYC — a stablecoin designed to track the value of the Japanese yen — spiked dramatically on Upbit, one of South Korea's largest crypto exchanges. Rather than holding near its peg, the token traded at roughly four times its expected price, a distortion that highlighted how thin liquidity can send asset prices spiraling away from their fundamentals.
The episode drew attention to a structural quirk in the South Korean market. Because effective market making is largely absent, there are few participants standing ready to buy and sell an asset around its fair value, leaving prices vulnerable to sharp and irrational swings.
When no one is there to keep prices honest, even a stablecoin can trade at quadruple its peg.
Why Market Making Is Restricted
Market making — the practice of continuously quoting buy and sell prices to provide liquidity — is a routine feature of mature financial markets. In South Korea, however, the activity is effectively curtailed by rules aimed at preventing price manipulation.
Those regulations, intended to protect retail investors from artificial price movements, have had the side effect of discouraging the kind of professional liquidity provision that keeps prices stable elsewhere. The result is a market that can be prone to volatility and pricing dislocations.
Following the JPYC incident, regulators appear open to revisiting the framework. Officials are weighing whether permitting legitimate market makers could reduce the risk of similar distortions while maintaining safeguards against genuine manipulation.
What Comes Next
Any policy shift would require striking a careful balance. Authorities must distinguish between healthy liquidity provision and manipulative trading practices — a line that has historically been difficult to draw in fast-moving crypto markets.
- Regulators are reconsidering restrictions that currently limit crypto market making
- The JPYC spike on Upbit underscored the dangers of thin liquidity
- Any new rules would need to guard against manipulation while allowing liquidity
For now, the debate signals a broader recognition that South Korea's rules, though well-intentioned, may need updating to reflect the realities of a maturing digital asset market