Wemix debacle raises calls for swift institutionalization of crypto market

Wemade CEO Chang Hyun-guk sheds tears, crying foul over a decision by crypto exchanges to delist its Wemix coin, during an online press conference on Nov. 25. Screen capture from YouTube

Political deadlock feared to delay discussions on crypto institutionalization

By Lee Min-hyung

The abrupt delisting of the once-popular Wemix coin has rekindled calls for authorities to take swift action to institutionalize Korea's crypto market.

Wemix was issued by Korea's famous game publisher, Wemade, and its valuation soared to a record high of more than 25,000 won ($19) on Nov. 24, 2021. The coin then fell to around 3,000 won from July this year, following in the footsteps of other major cryptocurrencies. Wemix did not show any wide price fluctuations until mid-November when Korea's four major crypto exchanges made a joint decision to delist the controversial coin, citing its low credibility because the amount of Wemix in circulation was bigger than what the firm notified earlier.

Wemade has since taken legal action, but a Seoul court recently decided to reject the firm's appeal. Following the decision, any trading of Wemix coins was suspended from the four exchanges as of 3 p.m. on Dec. 8. Any withdrawal of the coin will not be available after Jan. 6, according to the exchanges.

The unexpected collapse of the cryptocurrency came as another wake-up call for financial watchdogs regarding the establishment of legal safeguards in the industry. Investors suffered huge losses due to the latest scandal.

But this was not the first time such an incident occurred in Korea.

The once-promising Luna-Terra ecosystem also ended in failure in May after the Terra stablecoin fell below its intended $1 peg. Victims of both incidents cannot be compensated legally for their losses due to the absence of relevant regulations on the crypto industry.

Market experts advise authorities to stop delaying the introduction of crypto regulations, in order to prevent the recurrence of similar incidents.

"Not a single internal control system has operated when trading Wemix, and it was hard (for financial authorities) to enforce it due to the absence of relevant laws," Kim Kab-lae, a senior research fellow at the Korea Capital Market Institute, said.

The U.S. Securities and Exchange Commission supervises major crypto exchanges there, but this is not the case in Korea, he said.

"A financial market crash occurs when investor confidence shrinks and a kind of a bank run happens," he said. "The price of cryptocurrencies will definitely plunge when a certain amount of a coin is supplied to the market without any prior notice to market participants. But the Capital Market Act strictly prohibits such a scenario from occurring in the stock market."

Wemade's headquarters in Pangyo, Gyeonggi Province / Yonhap

However, the institutionalization of the crypto market still appears a long way off amid the never-ending political deadlock. The introduction of the Digital Asset Basic Act was President Yoon Suk-yeol's pledge, but the main and opposition parties have yet to reach any consensus over when to introduce the act. The law is aimed at establishing a legal safeguard to protect crypto investors, while at the same time promoting the industry's sustainable growth.

The National Assembly's political affairs committee was scheduled to discuss the issue and other pending crypto-related agendas on Dec. 13, but in the end, it was canceled, further delaying the timeline for crypto's institutionalization to 2023 at the earliest.

Earlier, the Yoon administration shared its vision of enacting the act by next year and making it effective from the beginning of 2024. But it appears tough for both the ruling and opposition camps to swiftly resume their talks on the enactment of the act when considering their prolonged political conflict over other pending issues ― such as planning the 2023 national budget.

Industry officials also call for the urgent need to institutionalize the industry with relevant regulations at a time when even existing crypto investors are exiting the market amid escalating fears of yet another debacle.

"Not just crypto exchanges, but most digital asset business operators here want authorities to set up specific legal guidelines and regulations on the industry, as this will help restore trust from investors frustrated over a series of recent crypto scandals here and abroad," an official at a crypto exchange said.

"Starting this year, investor sentiment dipped to the lowest level across the crypto market, but the abrupt collapse of the Luna coin and FTX came as a big shock to investors, making them skeptical of the industry's sustainability," the official said. "But such worries are expected to be alleviated when the industry is legally accepted as a subject of regulation."

The abruptly frozen sentiment was attributable to the U.S. Fed's aggressive monetary policies this year when other asset markets ― including stocks and real estate ― also experienced sharp declines.

Dunamu, the operator of the nation's dominant crypto exchange, Upbit, reported dismal earnings performance in the third quarter. The company reported 271.9 billion won in sales between July and September, down 66.3 percent from a year earlier. Its operating profit extended a bigger drop of 76.6 percent during the same period, hit hard by plummeting profits from its crypto trading commissions. The company reported record sales of 1.43 trillion won in the second quarter of 2021 when the global asset market heated up on near-zero interest rates at the time.