South Korea Weighs Allowing Crypto Market Makers After JPYC Spike Exposes Liquidity Risk

Regulators are reconsidering restrictions on crypto market making after a Japanese yen stablecoin traded at four times its intended $1 value on Upbit earlier this month, highlighting the dangers of thin order books.

South Korea's financial authorities are re-evaluating their effective ban on crypto market makers following a dramatic price distortion that saw JPYC, a stablecoin pegged to the Japanese yen, trade at nearly 400% of its intended value on the country's largest exchange.

The incident occurred earlier in September 2026 on Upbit, where JPYC briefly spiked to approximately four times its peg. The distortion was attributed to extremely thin liquidity and the absence of professional market makers who would normally arbitrage away such pricing inefficiencies within seconds. Under South Korea's current interpretation of market manipulation rules, the activities typically performed by market makers—placing simultaneous buy and sell orders to provide liquidity—are effectively prohibited.

Market makers play a crucial role in traditional and crypto markets by continuously quoting both bid and ask prices, ensuring that assets can be bought or sold without dramatic price swings. Their absence creates what traders call 'gapping risk,' where even modest buy or sell orders can move prices violently. The JPYC incident demonstrated this risk in stark terms: holders attempting to exit positions could have received wildly inflated proceeds, while buyers paid vastly more than the asset's true value.

South Korean regulators had previously taken a hard line on any activity that could constitute market manipulation, viewing market making as indistinguishable from artificial price inflation. This approach differs markedly from other major jurisdictions including the United States, European Union, and Singapore, where licensed market makers operate under clear regulatory frameworks that distinguish legitimate liquidity provision from manipulation.

The reconsideration comes as South Korea seeks to balance investor protection with market functionality. Without market makers, even large-cap tokens can experience flash crashes or spikes on local exchanges, creating arbitrage opportunities that favor sophisticated traders while exposing retail investors to execution risk. Upbit operator Dunamu has not commented on whether it advocated for regulatory change following the JPYC incident.

If South Korea moves forward with allowing regulated market making, exchanges would likely need to implement disclosure requirements and surveillance systems to distinguish between legitimate liquidity provision and wash trading or spoofing. The decision could affect not only stablecoins but the broader crypto market structure on Korean exchanges, which collectively handle billions of dollars in daily volume but often show price discrepancies with global markets due to liquidity fragmentation.