South Korea weighs crypto market makers after JPYC trades at 4 times peg

What happened

Crypto exchange Upbit opened trading of JPYC, a yen-backed stablecoin (a digital token meant to hold a fixed value, usually one dollar), on Sept. 17, with the market opening at 12 Korean won per JPYC before reaching a high of 37.6 Korean won just an hour later, more than four times its market value.

Crypto market making is effectively restricted under South Korea’s manipulation rules, but regulators are reconsidering the approach after a JPYC spiked on Upbit this month. The spike was attributed to limited liquidity on Upbit.

South Korea’s Virtual Asset User Protection Act currently does not contain an exemption for market-making from its market manipulation provisions, preventing market makers from providing liquidity in crypto markets. South Korean academics have debated the market-maker carve-out before.

Researchers had called for a formal market-making framework long before the recent JPYC episode. A paper by Yoonyoung Choi from the Korbit Research Center argued that the domestic crypto market has been experiencing “serious liquidity problems” due to the absence of a formal market maker system, leading to price discrepancies and high volatility. The paper cited the Kimchi premium as an example of inefficiency in South Korea’s crypto market.