Introduction
Market participants in South Korea have urged the implementation of liquidity protections as part of future regulations governing won-denominated stablecoins. Following significant price fluctuations observed with foreign stablecoins on local exchanges, stakeholders are advocating for regulators to review factors such as the initial supply, issuance and redemption processes, as well as mechanisms for market makers and controls against unusual trading activity. This proposal emerges during the advancement of South Korea’s updated digital asset regulatory framework, which aims to address stablecoin issuance and trading operations.
Recent Trading Trends
Recent trading trends illustrate how limited liquidity on exchanges can cause stablecoins to stray dramatically from their intended pegs. Notably, the JPYC (JPY Coin), introduced on Upbit on September 17, exhibited extreme price increases, reaching 37.6 won from an initial reference of 8.8 won. The price surge occurred as buying pressure outpaced available supply, prompting Upbit to broaden its deposit networks to include Kaia and Polygon, which allowed a greater quantity of JPYC to circulate. Ultimately, the price stabilized back near the 8-won range shortly thereafter.
During the same period, PayPal USD (PYUSD) experienced a significant price hike on Upbit, attaining a peak of 1,760 won before retracting to around 1,360 won. This volatility could be attributed to limited liquidity during the early trading phase, underscoring how diminished supply can lead to significant price deviations from the dollar.
Similarly, Circle’s euro-backed EURC displayed a sharp price distortion on Bithumb, skyrocketing to 7,860 won shortly after midnight on September 14, up from a prior close of 1,513 won, marking a staggering increase of over 400%. This spike, occurring weeks after EURC was first listed, was linked to concentrated trading orders and low liquidity rather than any changes to the euro behind the stablecoin.
Additionally, USDG also saw an unexpected rise during this timeframe, trading at 3,048 won compared to its previous close of around 1,358 won. Such recurring anomalies in stablecoin pricing have prompted stakeholders to demand clearer guidelines addressing exchange liquidity, distinct from issuer reserves.
Regulatory Discussions
Regulatory discussions concerning won stablecoins have primarily focused on the entities permitted to issue these assets, minimum capital requisites, and backing assets. Participants have suggested that the forthcoming regulations should expand to encompass secondary-market trading dynamics. Ideas on the table include ensuring that an adequate initial circulating supply exists before an asset is traded on exchanges and maintaining responsive issuance and redemption channels that adapt to market demands.
Further, industry participants propose that designated market makers or liquidity providers maintain consistent buy and sell price quotes, introduce mechanisms for tracking price deviations from stablecoin reference values, and regulate specific market orders during significant price movements. An industry representative warned that even a well-structured won-backed token could face sharp volatility under conditions of sudden demand spikes if the circulating supply remains insufficient.
Future Outlook
The Financial Services Commission (FSC) of South Korea has yet to finalize these proposed liquidity regulations, emphasizing that crucial components of the second-stage digital asset framework remain under active discussion. Current deliberations revolve around stablecoin legislation and other digital assets, with expectations that the framework will advance significantly by 2026. An FSC official indicated that legislative proposals related to digital assets may reach a subcommittee for review in November.
Central to this regulatory discourse is the question of which entities will be allowed to issue won-denominated stablecoins. The Bank of Korea has shown preference for a bank-led approach to ensure monetary policy and financial stability. However, the FSC clarified earlier in the year that it is still formulating these structures and has not reached consensus on key provisions. Additionally, the ongoing work surrounding a government proposal for the updated Digital Asset Act has yet to finalize ownership regulations affecting cryptocurrency exchanges, signaling that further developments in stablecoin policy are still on the horizon. The FSC has also noted that potential infrastructures connecting tokenized securities with stablecoins depend on the yet-to-be-established stablecoin legislation.
