It was reported on the 21st that the National Intelligence Service (NIS) detected a number of cases of fraud at the so-called ‘Decentralized Exchange (DEX)’, which intermediaries buyers and sellers to directly trade virtual assets (coins), and requested the police to investigate.
A decentralized coin exchange is a form of providing a platform for trading coins in a ‘P2P’ method. This is a blind spot for financial crime investigations, as buyers and sellers can sign up without revealing their identities or verifying accounts, and unlike existing coin exchanges, there is no separate server to operate, so no transaction records are left.
According to the intelligence authorities on the 21st, it is known that the National Intelligence Service (NIS) has obtained information on fraud allegations from some overseas decentralized coin exchanges since last year and recently transferred the investigation results to the National Police Agency. According to the investigation by the National Intelligence Service, some decentralized coin exchange companies are registered as offshore companies in tax havens or have shared offices as their locations. If the decentralized coin exchange brokers fraudulent transactions and then hides the proceeds abroad, it is difficult to trace the account even if the victim complains to the investigative authorities for fraud damage. In addition, some decentralized coin exchanges advertise that they are depositing their investment, but do not disclose deposit certificates of foreign banks. An NIS official said, “Recently, some foreign companies are recruiting individual investors by deceiving that they are depositing their investment in world-leading financial companies and can generate high profits by trading virtual assets through expert groups.”
The fraud method through the decentralized coin exchange identified by the National Intelligence Service is reminiscent of the ‘Operation Yeouido force’. The most common method is cycling. Bicycle trading is a method in which the same entity buys and sells stocks to inflate the price in order to inflate the trading volume. The NIS has caught a case in which corporations and employees operating specific coins buy and sell their own coins, inflating the transaction volume and artificially raising the market price. A scam called ‘Coin Swap’ is also rampant. A coin swap is a method that damages traders by returning them to ‘valueless coins’ issued by the company while receiving an investment with a coin that has already been trusted by investors.
Even some decentralized coin exchanges are promoting that when they recruit members, they will provide a portion of dividend income based on performance and pay incentives after reaching the investment attraction goal. As members are recruited using a method similar to that of multi-level companies, coin transactions can be used as a bait to turn into a large-scale fraud.
As a result of the Maeil Business Newspaper coverage, Swiss-based company A is recruiting member partners through blog posts. In the recruitment article, it is written that members who own the company issued coins will be divided into standard, partner, and platinum grades and part of the commission income will be distributed. After making the payment of a certain amount of virtual assets, it will be compensated in exchange for its own issued coins. Company B was promoting that it must own a certain amount of self-issued tokens in order to belong to the VIP lounge group. There is also a phrase that says that it recommends new projects that only registered members can participate in, and that it recruits investors through crowdfunding.
According to US cryptocurrency data provider Messari, transactions on decentralized coin exchanges were $1 billion in May last year, and soared to $122.3 billion in April. Hyuk-jun Kwon, a professor of economics and finance at Soonchunhyang University, said, “The demand for decentralized coin exchanges is increasing as the security and transparency problems of existing coin exchanges are exposed. It is flowing to the coin exchange,” he said.
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