Another setback caught the South Korean digital currency market off guard last week, sending jitters through investors amid deepening worries over the reliability and security of blockchain-based cryptocurrencies.
The shock wave was sparked by the country’s major crypto exchanges’ decision to delist the Wemix token issued by Wemade’s blockchain platform. On Thursday, the Digital Asset Exchange Alliance, known as DAXA, representing leading crypto exchanges here, decided to halt trading of Wemix tokens on their platforms from Dec. 8.
Wemade, a Kosdaq-listed video game developer known for The Legend of Mir series, has been drawing attention from crypto investors for running one of the world’s most popular blockchain games, Mir 4, and drawing $46 million in investments from Microsoft and local funds.
The delisting came about six months after the local crypto exchange market was slammed by the crash of terraUSD and luna in May -- a high-profile meltdown that touched off a wave of fears about the risk of crypto investments around the world.
With Wemix shares plunging, Wemade protested the exchanges’ delisting decision, claiming the move resulted from an “unfair and obscure” process. Two sides are now telling somewhat different stories about the disputed step that could seriously hurt the confidence of crypto investors.
DAXA said the Wemix blockchain platform filed false information about tokens in circulation, as far more tokens were circulated than the company had earlier disclosed. DAXA said it sent a warning to Wemade about the inaccurate information in late October, but the company did not respond to fix the problem.
Wemade, however, countered DAXA’s claim by arguing it did not receive guidelines on the volume of tokens from Upbit, one of the exchanges involved, in a press conference Friday. Wemade CEO Chang Hyun-guk said the company would take legal action against DAXA.
Although financial authorities began to review the delisting standards in the wake of the Wemix incident, there is no legal ground to regulates the delisting process assigned to DAXA. And there are other blockchain tokens whose circulation details are inaccurately disclosed on the exchanges as well, which Wemade cited as evidence of an unfair process in connection with the delisting of Wemix.
The possible delisting of Wemix, whose market valuation peaked at 3.5 trillion won ($2.6 billion) at one point, lays bare the fundamental vulnerability of blockchain coins. Although cryptocurrency has been embraced as a new investment tool around the world, experts have long warned about potentially high risks shrouded in tech jargon and obscure concepts that defy accurate value assessment.
Early this month, crypto investors both at home and abroad were alarmed by the sudden bankruptcy of FTX, formerly the third-largest crypto exchange by volume, in a spectacular collapse that undermined the credibility of digital currency and left a number of investors with big losses.
A series of crypto scandals -- from terraUSD and luna to FTX to Wemix -- appear to be serious enough to make crypto investors rethink their investment decisions, largely because proper regulations are nowhere to be found yet, and there is no guarantee that other exchanges and cryptos are immune to implosion.
It is too early to lose hope for the global crypto market, whose total market cap is currently estimated at $820 billion, but crypto platform firms and exchanges must shape up and address the key problems to keep the staggering market from crashing down all together.
Wemade, for its part, is likely to face criticism for the mismatch concerning Wemix tokens in circulation. And it is not the first time Wemade has found itself entangled in a dispute over disclosure. In 2020, the company faced criticism as it cashed out 227 billion won by selling off over 100 million Wemix tokens without public disclosure.
The local exchanges also should be held accountable for listing too many tokens without proper assessment and validation, resulting in losses of unsuspecting investors.
Local blockchain platform companies should step up efforts to offer accurate information and the exchanges have to strengthen listing standards to screen out unreliable cryptos if they want to avoid a high-speed collapse like FTX, and to keep cryptocurrencies’ respective values from plummeting to a useless level.