South Korea’s FSC Eyes End to Crypto Market-Maker Ban After JPYC Blows Past Peg on Upbit

South Korea’s Financial Services Commission (FSC) has announced it will review legalizing crypto market makers, a practice currently banned under the Virtual Asset User Protection Act (VAUPA).

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JPYC’s 4x Upbit Spike Exposed Korea’s Order-Book Problem

The announcement came on September 28 at The Bridge Summit 2026 in Gangnam, Seoul.

FSC Director of Digital Finance Policy Yoo Young-jun stated the regulator will “review the necessity of introducing systems such as market-making activities to enhance efficiency and stability of digital asset markets.”

The move signals a policy shift for one of the world’s deepest retail crypto markets.

The review builds on Seoul’s recent regulatory momentum. South Korea recently lifted its nine-year ban on corporate crypto investment, opening the door for over 3,500 firms to hold digital assets.

Yet without legal two-sided order books, large corporate entries risk landing into the same thin liquidity that plagued retail traders last month.

The policy review was triggered directly by a market-structure failure. On September 17, Upbit listed JPYC, a yen-backed stablecoin that had raised $38 million in a Series B extension.

JPYC is designed to trade at 1 JPYC = ¥1 (approximately 8.8 KRW). Within one hour of its Upbit listing, however, the token hit 37.6 KRW, more than four times its peg.

The culprit was not insolvency. JPYC still redeems at ¥1 at the issuer. The problem was a structurally thin KRW book with no professional two-sided flow.

Local analysts described the spike as a “serious liquidity problem” on the Korean side. First-day won volumes ran into the hundreds of billions of KRW.

Issuance was briefly paused, supply ramped, and the premium collapsed, but not before retail traders absorbed the loss.

Yoo acknowledged “user losses” from the episode and said “demands for discipline in this area are expanding.”

South Korea’s thin-book problem is not new. The Kimchi premium, the persistent gap between local and global crypto prices, has long reflected the absence of legal arbitrage and professional liquidity flows.

VAUPA’s blanket ban treats two-sided quoting as a form of market manipulation. What is normal market-making infrastructure in Korean equities is effectively illegal in Korean crypto.

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Phase-2 Law Could Reshape Korea’s Crypto Infrastructure

The FSC is not switching rules overnight. The market-maker carve-out would arrive through Korea’s Digital Asset Basic Act, a draft finalised earlier this year.

That Phase-2 legislation also covers exchange licensing, stablecoin issuance, and disclosure standards.

Yoo added that the FSC is pushing exchanges toward statutory oversight on matching, listing, and abnormal-trade monitoring, moving from self-regulation to public rules.

Major-shareholder governance and conflict-of-interest frameworks are also on the table.

The timing matters. Korea’s stablecoin rules have already hit a dead end as the FSC and Bank of Korea disagree on who may issue a won-backed token.

Legalizing crypto market makers alongside a won stablecoin regime, if that deadlock breaks, could meaningfully tighten spreads and improve settlement infrastructure.

The FSC three-stage tokenization roadmap targeting February 2027 adds urgency. Illiquid books on a tokenized securities market would recreate the same JPYC problem at larger scale.

Investors are already moving, as Samsung Securities’ acquisition of a stake in Upbit parent Dunamu marked TradFi’s first formal bet on Korean exchange infrastructure.

A licensed crypto market maker framework would raise the franchise value of that infrastructure considerably.

If Phase-2 passes with capital requirements, quoting duties, and a surveillance layer modelled on KRX rules, institutional execution becomes viable, and the corporate 5% crypto allocation introduced earlier this year gains a real order book to execute against.

For now, nothing is approved. The FSC review is a policy signal, not a start date.

Eligibility criteria for licensed crypto market makers, won stablecoin issuer rules, and the full Phase-2 timeline remain open questions. Seoul has admitted the ban is now costing users.