Industry insiders in South Korea are calling for the inclusion of liquidity guarantee measures in the regulations for Korean won stablecoins in the future, as various foreign currency stablecoins have exhibited significant price deviations on local South Korean exchanges.
- After Upbit went live, JPYC soared to 37.6 Korean won, before then returning to a level close to the Japanese yen reference price.
- PYUSD once rose to 1,760 Korean Won on Upbit. Limited early liquidity caused a temporary distortion in the pricing of its stablecoin.
- EURC rose to 7,860 Korean won on Bithumb, an increase of over 400% from the previous closing price.
- Industry insiders hope that factors such as liquidity providers, issuance guarantees, and price control will be taken into consideration in the regulations for Korean won stablecoins.
- South Korea is expected to bring the second phase of digital asset legislation to parliamentary review in November.
On September 27th, reports from News1 indicated that market participants hoped that regulatory authorities would review the initial supply, issuance and redemption channels, market makers, as well as controls on abnormal transactions. These proposals emerged as South Korea advanced with its second phase of digital asset legislation, which is expected to cover the issuance and circulation of stablecoins.
Recent transactions show that when the liquidity of exchanges is limited, the prices of stablecoins can deviate from the currencies they are designed to be pegged to. JPYC, PayPal USD, and EURC all experienced abnormal price fluctuations in the South Korean won market during September.
JPYC Price Surge Sparks Reexamination of Stablecoin Liquidity
After the Japanese yen-linked stablecoin JPYC began trading on Upbit on September 17th, it rose to a maximum of 37.6 Korean won. At that time, the reference value of this stablecoin, which was pegged to the Japanese yen, was close to 8.8 Korean won, meaning that the exchange price exceeded this level by more than four times.
Yonhap reports that when JPYC trading began, it was around 12 South Korean won, and then it rose above 37 South Korean won after the buying demand met with limited available supply. Upbit later expanded the supported recharge networks from Ethereum to Kaia and Polygon, allowing more of JPYC to flow into the exchange. The next day, the token fell back to around the 8 South Korean won range.
Before the transaction began, Upbit provided a reference price of 8.81 Korean Won for JPYC. When announcing its launch, the exchange initially planned to support only Ethereum deposits and withdrawals.
In related reports, crypto.news mentioned that Upbit postponed the JPYC transaction by 3 hours on September 17, while the arrangements for PYUSD remained unchanged. This launch covers the KRW, BTC, and USDT markets.
PayPal USD also experienced smaller but still notable fluctuations on the same exchange. Upbit Data shows that PYUSD reached a historical high of 1,760 South Korean Won on September 17, before then falling back to around 1,360 South Korean Won.
News1 attributes this fluctuation to limited supply in the early stages of trading. Compared to JPYC, PYUSD is still closer to its US dollar reference value, but this surge indicates that exchange prices may deviate when the available sell-side liquidity is thin.
EURC provides another example of the surge in Bithumb.
Circle issued a euro-pegged EURC, which also experienced another round of price distortion on Bithumb. EURC rose to 7,860 Korean Won shortly after midnight on September 14th, from a previous closing price of 1,513 Korean Won. This change represents a gain of over 400%, while the overseas price remains close to the value converted from euros.
According to the official records of Bithumb, EURC actually entered the Korean won market on August 28th, rather than September 14th. The exchange set a reference price of 1,609 Korean won for this token and supports deposits and withdrawals via Ethereum.
Therefore, the fluctuation on September 14th occurred more than two weeks after its launch. Reports linked this surge to concentrated orders and thin liquidity, rather than any change in the euro reserves behind the token. According to reports based on Bithumb transaction data, approximately 60% of the EURC trading volume on that day was completed within 15 minutes.
During the same period, USDG also experienced another round of abnormal fluctuations, rising to 3,048 South Korean Won on Bithumb, while the previous closing price was close to 1,358 South Korean Won. These recurring events have prompted industry insiders to call for a reevaluation of the stablecoin market regulations, suggesting that the liquidity of exchanges should be considered separately from the reserves of issuers.
Korean won stablecoin regulations may cover liquidity and redemption requirements
The current discussions surrounding KRW-pegged stablecoins mainly focus on who is allowed to issue them, the minimum capital requirements, and the assets used to support the circulation of these tokens.
Industry insiders quoted by News1 hope that the regulatory framework will be further extended to secondary market transactions. Suggested measures include requiring a sufficient initial circulation volume before trading begins on exchanges, as well as maintaining issuance and redemption channels that can respond to changes in market demand.
Some participants proposed that market makers or liquidity providers should continuously provide buy and sell quotes. Other suggestions included displaying the degree of deviation of stablecoins from their relative reference values, as well as restricting certain market orders when prices deviate significantly from the underlying currency.
An industry insider quoted by News1 stated that if demand suddenly rises while the circulating supply is insufficient, tokens supported by the Korean won could still experience significant fluctuations. The individual called for the establishment of standards covering issuance, redemption, liquidity provision, and responses to abnormal market conditions.
The reserve requirements apply to another part of the structure. The assets held by the issuer can support redemption at a specified value, while the exchange price is determined by the available buy and sell orders, as well as the ability to transfer tokens between different platforms or to redeem them from the issuer.
The Financial Services Commission of South Korea has not yet announced final rules regarding these proposed liquidity safeguards. The regulatory agency has repeatedly reminded that the main parts of the second-phase digital asset framework are still under discussion.
South Korea aims to review the digital asset bill in November
As regulatory agencies and legislators negotiate rules for stablecoins and other digital assets, the related legislative work continues to progress.
An official from the Financial Services Commission of South Korea stated on September 22 that the Digital Asset Framework Act is expected to enter the parliamentary bill review process in November. Currently, there are 10 proposals regarding digital assets and stablecoins awaiting review, and policymakers are still discussing a consolidated framework.
As previously reported by crypto.news, the proposed legislation covers the issuance and distribution of digital assets, including stablecoins. Regulators hope to advance the second-phase framework in 2026.
One of the unresolved issues is which companies are allowed to issue stablecoins denominated in Korean won. The Bank of Korea supports the structure initially led by banks, due to concerns regarding monetary policy, payment systems, and financial stability.
Earlier this year, the Financial Services Commission of South Korea stated that it was too early to conclude reports regarding the structure of stablecoin issuers. In January, the regulatory agency mentioned that discussions with other institutions were still ongoing, and key terms had not yet been finalized.
As reported in July by crypto.news, the central bank continues to favor a bank-led consortium model, while legislators are discussing a pending framework. The Bank of Korea is defending a stablecoin scheme that gives priority to banks.
By August, the Financial Services Commission of South Korea stated that the government's proposal for the second phase of the "Digital Assets Act" was still in the process of being formulated. The regulatory authority once again reminded that specific provisions, including those affecting the ownership rules of cryptocurrency exchanges, had not yet been finalized.
South Korea's securities token roadmap for September also indicates that the stablecoin policy is not yet complete. The Financial Services Commission of South Korea stated that in the future, the on-chain payment infrastructure may ultimately connect tokenized securities with stablecoins, but the subsequent implementation stages will depend in part on the stablecoin legislation that still needs to be passed.
