[Why&Next] Exchanges' Tyranny?…Wemix Delisting Sparks Controversy

[Image source=Yonhap News]

[Asia Economy Reporter Kang Nahum] Controversy over fairness and equity continues to linger regarding the decision by the Digital Asset Exchange Joint Council (DAXA, Daksa) to delist WEMIX. There is widespread speculation that the council, a private consortium of exchanges rather than a legal authority, may have exercised 'excessive power' strong enough to destabilize a sound company.

"Daksa is merely a private business, not the Korea Exchange"… Allegations of exchange collusion

According to industry sources on the 28th, Wemade plans to file a complaint with the Fair Trade Commission against Daksa, which consists of virtual asset exchanges operating KRW markets. Alongside this, they are preparing a provisional injunction lawsuit requesting the cancellation of the WEMIX delisting decision against each exchange.

Currently, not only Wemade but also investors and market participants are voicing strong criticism of Daksa's decision to end support for WEMIX trading, questioning its fairness. Their main argument is that Daksa is merely a private business that intermediates virtual asset trading for profit, and its member exchanges are not market institutions performing public functions like the Korea Exchange (KRX) in the stock market.

Due to the legislative gap in virtual asset regulation, the authority to decide on delisting has been temporarily delegated to Daksa. To resolve controversies where each exchange arbitrarily decides on delisting criteria, causing investor harm, the ruling party and government have granted Daksa regulatory authority on a temporary basis until legal frameworks are established. Since exchanges that occupy nearly 100% of the domestic virtual asset market discuss and decide on delisting specific coins together, allegations of 'collusion' are inevitable.

Wemade CEO Jang Hyun-guk stated at a press conference on the 25th, "This series of events is Upbit's abuse of power," claiming that Upbit, a Daksa member, led the decision to suspend WEMIX trading. He said, "After WEMIX was designated as a cautionary investment item on the 27th of last month, we requested definitions and guidelines regarding the problematic circulating supply but have yet to receive them," adding, "We only learned about the end of trading support through Upbit's announcement. The decision-making process and results of virtual asset exchanges are opaque," he criticized.

Former KB Kookmin Bank President Lee Geon-ho also argued, "The Daksa member exchanges' 'collective' decision to suspend WEMIX trading support is a clear case of collusion," emphasizing, "Due to current domestic virtual asset trading regulations, there is no intermediary other than Daksa members that can support investors' WEMIX KRW trading." He further pointed out, "This (WEMIX trading support termination) decision constitutes an unfair act where Daksa members use 'absolute bargaining power through collusion' to completely block market access for WEMIX in Korea."

Why is WEMIX held to a stricter standard?… Equity controversy also arises

Regarding the 'circulation plan,' which became a contentious issue during the WEMIX trading termination process, equity concerns have also been raised in comparison with other cryptocurrencies.

Wemade claims that after WEMIX was designated as a cautionary item, they submitted a circulation plan to the cryptocurrency exchange Upbit and requested the exchange's circulation volume standards and guidelines but did not receive a response. They also pointed out that other coins that did not submit circulation plans continue to be traded. CEO Jang said, "Even now, if you go to Upbit, there are countless coins that have not disclosed circulation plans. We cannot overlook such unfairness."

Particularly, the fact that cryptocurrencies involved in social controversies such as price manipulation and slush fund creation allegations are effectively trading without sanctions from exchanges strengthens CEO Jang's claims.

A representative example is Hancom's 'Arowana Token.' When Arowana Token was listed on the virtual asset exchange Bithumb in April last year, its price surged over 1000 times within 31 minutes of listing, raising suspicions of price manipulation. Subsequent media reports suggested that Hancom Group had pre-arranged the listing date with Bithumb and commissioned market-making (price manipulation) firms to artificially inflate the token price.

Some media outlets also alleged that the real owner of 'Arowana Token' is Kim Sang-chul, chairman of Hancom Group, and that there were attempts to create slush funds.

Despite numerous controversies, this cryptocurrency was not only spared from trading support termination but was also removed from the cautionary investment list just one month after being designated in October 2021 and continues to be actively traded to this day.

As the controversy grew, financial authorities began monitoring market conditions following the WEMIX delisting decision and initiated institutional reviews related to delisting criteria in the cryptocurrency market. Although the decision to delist is currently subject to industry self-regulation and authorities lack legal power to intervene, the significant market impact has prompted a reconsideration of possible intervention.

A Financial Supervisory Service official stated, "We do not have legal authority to intervene in individual cases such as the WEMIX delisting decision," but added, "Since there are conflicting arguments and equity issues regarding delisting, we intend to review whether there are improvements to be made from an institutional perspective."