South Korea Reconsiders Crypto Market Makers After JPYC Spike

South Korea is revisiting its stance on crypto market makers after JPYC, a yen-pegged token, traded at roughly four times its intended value on Upbit this month. The episode highlighted how thin liquidity can distort prices when market making is constrained by rules aimed at preventing manipulation.

Under current South Korean enforcement standards, market making in digital assets is effectively restricted because regulators have treated some liquidity-providing activity as potentially abusive. Officials are now weighing whether that framework is too rigid for smaller or less liquid tokens that can become dislocated during periods of stress.

The JPYC move matters because it underscores a structural problem rather than a one-off pricing error. When exchanges cannot rely on legitimate liquidity providers to narrow spreads and absorb order flow, even modest demand can push a token far from its peg. That creates execution risk for traders and raises questions about how stablecoin-like assets should be supervised in local markets.

A policy shift would not amount to a broad deregulation of crypto trading. Instead, it would likely focus on defining acceptable market-making activity, including disclosure, inventory management and guardrails against wash trading or coordinated price support. The challenge for regulators is to improve market quality without reopening the door to the conduct they are trying to prevent.

For exchanges such as Upbit, the review could be significant. Better-defined market-making rules would likely improve order-book depth, reduce extreme dislocations and support tighter pricing on low-liquidity pairs. But any change would need to be paired with stronger surveillance and clearer compliance standards to avoid creating a new class of regulatory risk.