Cryptocurrency theft at Wemix underscores need to step up security for virtual assets

Wemade, a Kosdaq-listed gaming company in South Korea, has suffered a major cryptocurrency theft targeting its Singapore-based subsidiary, Wemix Foundation, amid criticism about delaying publicly disclosing the hacking incident.

Kim Seok-hwan, CEO of Wemix Foundation, apologized for the hacking incident at a press conference on Monday, pledging to get to the bottom of the cryptocurrency theft and setting up preventive safety measures against hacking attacks.

The security breach, which was first detected on Feb. 28, resulted from a malicious external attack on Wemix Foundation’s "play bridge vault” cryptocurrency wallet. The theft of the digital assets led to the loss of 8,654,860 Wemix coins, the value of which is estimated at 8.75 billion won ($6 million).

Wemix Foundation, one of the major players in the country’s blockchain sector, faces the possibility of being delisted from Korea’s crypto exchanges as it delayed public disclosure of the theft until March 4 -- four days after the theft was identified on Feb. 28.

The Digital Asset Exchange Joint Consultative Body, known as DAXA, designated Wemix coins as items of concern and suspended deposits on the same day the hacking was announced.

“There was no attempt to cover up the hacking incident,” Kim told reporters. “The delay in disclosure was intended to prevent additional hacking attacks and to block the potential panic on the crypto market over the loss of the digital assets.”

But it is not the first time Wemix has had problems that have alarmed crypto investors over disclosure. In October 2022, the crypto platform was designated as an investment caution item in connection with the circulation volume disclosure. Wemix coins were delisted in December 2022, and relisted in February 2023.

Wemix Foundation announced a buyback plan to minimize the fallout and restore market confidence, but the hacking incident as well as the public disclosure delay are examples of the fundamental safety and investor protection problems plaguing the domestic crypto market.

The latest hacking incident also marks a setback for the global crypto market since South Korea’s trade of bitcoin is the second-biggest in volume in the world, after that of the United States. In addition, the combined daily trade value of Korea’s five crypto exchanges reached $12.1 billion in November last year, which was bigger than the total of main bourse Kospi and the tech-heavy Kosdaq.

Despite the rapid expansion of the crypto market in Korea, experts continue to point out security issues that hurt investor confidence. These are particularly worrisome given that North Korea has emerged as a front-runner in stealing digital assets through its state-sponsored Lazarus hacking group.

Lazarus reportedly pulled off a large-scale heist targeting Bybit funds, stealing digital assets valued at around $1.46 billion, the bulk of which were later converted to bitcoin. The scale of the theft is equivalent to North Korea’s annual military budget.

Asked about the possibility that Lazarus might have been involved in the latest cybercurrency theft, Wemix CEO Kim said that the company does not believe Lazarus was the culprit, citing the consultation with third-party security experts.

Security loopholes in the crypto market cannot be overlooked, especially as the country’s financial regulators are moving to allow companies to invest in the cryptocurrency market.

On March 12, the Financial Services Commission held a press conference and pledge to swiftly devise measures to combat money laundering and strengthen internal controls concerning corporate investment in virtual assets. In particular, the FSC said it aims to establish specific guidelines for publicly listed firms by the third quarter of this year.

The FSC’s plan is a welcome development for the fast-evolving virtual asset industry. However, as the cryptocurrency theft at Wemix showed the substantial risks, regulators and crypto exchanges must strengthen security systems to safeguard digital assets against external threats such as cyberattacks.


koreadherald@heradcorp.com