Crypto Market Making in Korea: Legal Risks for Token Projects and Market Makers
Crypto market making is not automatically considered market manipulation under Korean law.
However, the legal analysis does not stop at whether an agreement is labeled as a “market making” or “liquidity provision” arrangement.
The key issue is how the trading strategy is actually structured and executed—particularly whether it is designed to artificially create trading volume, influence prices, or induce other investors to trade.
For foreign token projects, foundations, and market makers engaging with Korean exchanges or Korean users, this means that the Market Making Agreement, trading instructions, API logic, token lending structure, and fee arrangements should be reviewed together.
What Is Crypto Market Making?
Crypto market making generally refers to the continuous placement of buy and sell orders in order to provide liquidity to a trading market.
For newly listed or relatively illiquid virtual assets, limited order-book depth may result in wide bid-ask spreads and significant price movements even from relatively small orders.
To address this, a token project may provide tokens or capital to a professional market maker, which then places buy and sell orders on one or more exchanges.
A typical market making arrangement may include provisions concerning:
- Target exchanges and trading pairs
- Bid-ask spreads
- Liquidity or volume requirements
- Token lending and return arrangements
- Trading capital
- Service fees and performance-based compensation
- API or algorithmic trading systems
The important point is that entering into a Market Making Agreement does not determine the legal characterization of the actual trading activity.
What matters is how those contractual terms are implemented in the market.
Is Crypto Market Making Legal in Korea?
Crypto market making is not unlawful merely because liquidity is being provided to the market.
However, actual trading activity may fall within Korea’s prohibition on unfair trading if it is intended to induce other investors to trade or to artificially influence trading volume or prices.
Article 10 of Korea’s Act on the Protection of Virtual Asset Users prohibits, among other conduct:
- Matched orders
- Wash trades
- Transactions designed to create a false appearance of active trading
- Transactions intended to artificially move or stabilize the price of a virtual asset
- Other fraudulent or deceptive trading practices
Accordingly, describing a trading arrangement as “liquidity provision” is not sufficient.
The actual analysis may require reviewing:
- Who determines the trading strategy
- Whether specific price or volume targets are imposed
- Whether the token project participates in or directs trading decisions
- Whether the market maker’s compensation is linked to price or volume performance
- How orders, cancellations, and executions actually occur
The distinction between legitimate liquidity provision and unlawful market manipulation therefore depends heavily on the purpose and structure of the actual trading activity.
Act on the Protection of Virtual Asset Users – Article 10
What Market Making Structures May Create Higher Regulatory Risk?
Market manipulation risk may increase where a market making arrangement goes beyond providing ordinary liquidity and instead seeks to artificially create a particular level of trading activity or price.
🔹Key Market Making Terms to Review
| Structure | Key Legal Issue |
|---|---|
| Minimum trading volume | Whether volume is being artificially generated regardless of genuine market demand |
| Target price | Whether trading is intended to push the token toward a specified price |
| Price floor or price band | Whether the strategy constitutes ordinary liquidity provision or artificial price stabilization |
| Repeated high-priced purchases | Whether orders are intended to induce additional buying by other investors |
| Multiple trading accounts | Whether economically identical parties are trading against each other |
| API trading | How orders, cancellations, and re-orders are triggered |
| Token lending | How the market maker may use or dispose of the tokens and how they must be returned |
| Performance fees | Whether compensation is directly tied to price appreciation or increased trading volume |
A contractual requirement to maintain liquidity or a certain spread does not, by itself, establish unlawful conduct.
The analysis may change, however, where the actual strategy involves repeated trades unrelated to genuine market demand, artificial volume generation, or continuous buying designed to defend a specific token price.
The contractual KPI and the actual trading strategy should therefore be reviewed together.
Can API or Algorithmic Market Making Create Market Manipulation Risk?
The use of APIs or automated trading systems does not itself constitute market manipulation.
Automated order placement is commonly used in market making because market makers must respond quickly to changing order-book conditions.
The legal issue is what type of trading strategy has been automated.
Additional review may be required where an automated strategy involves, for example:
- Repeated high-priced purchases
- Large orders followed by rapid cancellations
- Multiple accounts placing coordinated orders
- Repeated trades designed primarily to generate volume
- Orders designed to influence prices across multiple exchanges
In July 2026, the Korean Financial Services Commission disclosed enforcement cases involving virtual asset market manipulation using high-frequency API trading, high-priced purchases, and manipulative order strategies.
The significance of these cases is not that API trading itself is prohibited, but that the purpose, order pattern, and resulting market impact of the trading activity are subject to scrutiny.
FSC – Key Results of Virtual Asset Unfair Trading Investigations
What Should Be Reviewed in a Market Making Agreement?
A Market Making Agreement should be reviewed not only for commercial terms, but also for how those terms may influence actual trading behavior.
Trading Volume Requirements
Where daily or weekly trading volume targets are imposed, the key issue is not simply the existence of a target.
The review should determine how the market maker is expected to achieve the required volume and whether the strategy may result in transactions unrelated to genuine market demand.
Price-Related Conditions
Terms such as “maintain the price above a certain level,” “defend against price declines,” or “reach a target price” require particular attention.
Ordinary spread management and trading intended to artificially maintain or influence a specific market price should not be treated as the same activity.
Token Lending and Return
Where a project provides a significant number of tokens to the market maker, the agreement should clearly address:
- Permitted use of the tokens
- Disposal authority
- Return obligations
- Settlement mechanics
- Allocation of trading profits and losses
Performance Fees and Trading Authority
Performance-based compensation should also be examined, particularly where fees are linked directly to token price appreciation or trading volume.
In addition, even where the written agreement gives the market maker independent trading authority, actual instructions sent through Telegram, Slack, email, or other channels may become relevant if the project is directing specific price or volume outcomes.
Is Reviewing the Market Making Agreement Alone Sufficient?
No. The agreement and the actual operating structure should be reviewed together.
A contract may simply refer to “liquidity enhancement,” “spread maintenance,” or “market making services.”
Actual communications or trading instructions, however, may contain materially different expectations concerning price support or volume generation.
For this reason, a legal review may need to cover not only the agreement itself but also:
- Market Making Agreement and side letters
- Internal operating guidelines and KPIs
- Exchange order and execution records
- API logic and trading parameters
- Trading-account structure
- Token and fund transfers
- Telegram, Slack, email, and other trading instructions
- Fee and performance compensation arrangements
The key issue is not only what the contract says, but how the contractual terms are implemented through actual orders and executions.
Do Korean Rules Apply to an Offshore Market Maker?
Using an offshore market maker does not automatically exclude the application of Korean law.
Article 3 of the Act on the Protection of Virtual Asset Users provides for extraterritorial application where conduct outside Korea produces effects within Korea.
Accordingly, Korean regulatory exposure should be considered where, for example:
- Market making is performed on a Korean exchange
- A token is listed on both Korean and overseas exchanges
- Trading on an offshore exchange is used to influence the Korean market
- A Korean project directs an offshore market maker regarding price or volume
Korean regulators have also investigated cases involving virtual assets listed simultaneously on Korean and foreign exchanges where trading activity across markets was allegedly used to influence Korean investors.
Depending on the exact scope of services, it may also be necessary to consider whether the market maker’s activities raise separate issues under Korea’s virtual asset service provider regulatory framework.
Act on the Protection of Virtual Asset Users
What Should Be Reviewed Before Entering into a Market Making Arrangement?
Before entering into a Market Making Agreement, the project and market maker should align the contractual terms with the anticipated trading structure.
1. Roles and Trading Authority
Determine who establishes the trading strategy and who has authority to execute orders.
2. Price and Volume KPIs
Review whether spread, liquidity, volume, or price-related KPIs may require problematic trading behavior in practice.
3. Token and Fund Flows
Map how tokens and trading capital move from the project to the market maker and ultimately to exchange accounts.
4. Trading Method
Determine whether trading will be manual, API-based, or algorithmic, and whether multiple accounts or exchanges will be used.
5. Compensation Structure
Assess whether compensation is simply payment for liquidity services or is directly tied to price appreciation or increased trading volume.
The relevant contracts, order logs, API records, internal instructions, and token transfer records should also be retained appropriately.
These materials may become important if the trading activity is later reviewed by an exchange, regulator, or investigative authority.
What Are the Consequences of Market Manipulation in Korea?
Market manipulation involving virtual assets may lead to administrative sanctions, criminal liability, and civil damages.
The Act on the Protection of Virtual Asset Users provides for monetary penalties in relation to unfair trading conduct and criminal penalties for violations of Article 10.
The severity of sanctions may vary depending on factors including the amount of unlawful profit or avoided loss.
The Financial Services Commission announced in July 2026 that, during the first two years following implementation of the Act, Korean authorities had completed approximately 40 unfair-trading investigations and referred or reported more than 30 cases to investigative authorities.
Accordingly, market making structures should not be reviewed only after an enforcement issue arises.
Potential unfair-trading exposure should be assessed at the contract and trading-structure stage.
FSC – Key Results and Future Plans for Virtual Asset Unfair Trading Investigations
Frequently Asked Questions (FAQ)
Q1. Is using a crypto market maker illegal in Korea?
No.
The use of a market maker does not itself establish market manipulation. The actual trading strategy, purpose, project involvement, and price or volume conditions must be reviewed.
Q2. Can a Market Making Agreement require a minimum trading volume?
A minimum volume requirement is not automatically unlawful.
However, if the target is achieved through transactions intended to create an artificial appearance of active trading, the arrangement may raise unfair-trading concerns.
Q3. Can a project ask a market maker to maintain a minimum token price?
Price-support or price-floor arrangements require particular caution.
Korean law prohibits certain transactions conducted for the purpose of inducing other investors to trade by artificially moving or stabilizing the market price.
Q4. Is API-based market making considered market manipulation?
No.
The use of an API itself is not prohibited. The relevant issue is whether the automated strategy is designed to artificially generate volume, influence prices, or induce other investors to trade.
Q5. Does Korean law apply to foreign market makers?
It may.
Where offshore trading produces effects in Korea, including through Korean exchange markets or Korean investors, the potential application of Korean virtual asset regulations should be reviewed.
Market Making in Korea Requires More Than Contract Review
The central legal issue in crypto market making is not whether a contract describes the activity as “liquidity provision.”
The key questions are how orders are actually generated, what objectives the project gives to the market maker, and what price and trading volume are ultimately created by the strategy.
Where price targets, volume KPIs, API trading, token lending, and performance compensation are combined, the legal analysis should cover both the written agreement and the actual operating structure.
