The prosecution has launched an investigation to see if there was an illegal transaction between the exchange and the digital currency issuer in the process of listing the digital currency (coin). As investors suffer one after another due to a sudden drop in some ‘Kimchi Coins’ (coins issued in Korea), exchanges are looking to see if they have received ‘money back’ and listing them. In the middle of the Luna event and the Wemix event this year, if illegal transactions are confirmed as facts, it is expected that the reliability of Kimchi Coin will inevitably be hit.
According to the domestic blockchain industry and legal community on the 25th, the Financial Investigation Division 1 of the South Seoul District Prosecutor’s Office is currently securing data summarizing the coin listing process of domestic coin exchanges. Based on this, we are investigating whether the exchange’s listing review process was legitimate. Major exchanges such as Upbit, Bithumb, Coinone, Korbit, and Gopax are reported to be targeted.
Coin listing is considered to be the core of the coin economy ecosystem. Coin issuers raise company operating funds by listing coins. Most early stage investors, such as venture capital (VC), also secure returns through listing. Listing actually determines the success of coin issuance. For this reason, rumors persisted in the industry that some coin issuers were providing refunds or a significant amount of their own coins to the exchange in exchange for coin listings.
Most coins rose after listing, but then plummeted as issuance volume increased. Some have been removed from the list. In the process, many individual investors suffered huge losses. The reason why this kind of damage is repeated is that exchanges exercise almost full power in listing and delisting coins. Unlike an initial public offering (IPO) in the stock market, no government approval is required, and there are no associated regulations such as demand forecasting and hedging.
Even if the use of information related to undisclosed coins, market price manipulation, and illegal transactions are common, there is no legal basis for the government to punish them.
Kimchi Coin, Suspicion of Doubtful Listing… Profit dozens of times from publishers and VCs
It is known that the luna crash in May was the trigger for the prosecution to investigate the five major domestic digital currency (coin) exchanges and coin issuers, including Upbit, Bithumb, Coinone, Corbit, and Gopax. Domestic exchanges scrambled to list Luna as a promising coin. However, Luna plunged 99% from its peak, and only then did the exchanges list it, saying it was a “risky and volatile” coin. Investors who could not sell Luna had no choice but to move Luna to a foreign exchange. The listing and liquidation of Luna was done according to the judgment of the exchange without external standards. This is because the coin trading brokerage market, unlike an initial public offering (IPO), is not subject to government regulation or oversight.
Issuing currency (public currency / ICO) is illegal in Korea. However, according to the Financial Services Commission, as of the first half of this year, 260 domestic coins (Kimchi Coins) have been listed in Korea. Most of them are issued overseas, such as Singapore, and then traded on domestic exchanges. More than 50% of issued coins are held by most issuers. In addition, venture capital (VC), etc., who have invested a significant amount in the company, will receive the company’s shares instead.
Coin issuers have no choice but to put their necks on listing on the exchange to increase corporate value and secure company operating funds. In this process, some coin issuers are suspected of providing ‘money back’ as listing fees (listing price) to the exchange. The Dragon Vein Foundation, which issued the Dragon Vein coin last year, claimed to have paid about 200 million won for listing on Bitsum, the second largest exchange in Korea. Exchanges counter that they select coins for listing through strict screening. However, the listing standards and screening process have not yet been revealed.
Most of the listed coins have risen in price. Last year, when a large-scale bull market developed, the stock price rose dozens of times higher than the listing price. VCs who secured coins at a price lower than the listing price were so-called jackpots. Dunamu & Partners, Dunamu’s investment subsidiary, invested 2.54 billion won in Terraform Labs, the publisher of Luna, in 2018 and sold Luna last year, earning about 130 billion won.
The coin issuer also took a huge amount. WeMade acquired SundayToz, the developer of the game ‘Anipang’, for 136.7 billion earned with the money secured by the sale of its self-proclaimed Wemix last year. There was even talk of a new type of mergers and acquisitions (M&A) without capital.
In the stock market, there are instances of price manipulation that are hard to imagine. Recently, the financial authorities are known to have exposed a coin issuer who raised the price of the coin by almost 400% in one month through cross-trading.
Correspondent Kim Joo-wan/Lee Kwang-shik kjwan@hankyung.com
