Last year’s problems with wemix, a digital currency issued by South Korean game developer Wemade, were a wake-up call to both investors and regulators in a digital currency market that, while one of the largest in the world, remains largely unregulated.
Wemade was one of the first major South Korean gaming companies to develop so-called “play to earn” video games, in which players can accumulate cryptocurrency. Wemix tokens, used in the Mir 4 online game, have quickly gained popularity among cryptocurrency investors.
But the discontent increased dramatically when Wemade expanded Wemix distribution beyond the promised amount to fund the company’s corporate expansion.
“Breaking its disclosure to the market was a serious matter as it could undermine the value of the coin and disrupt the market mechanism,” recalls Kim Ik-hyun, a partner at Yulchon, who leads the South Korean law firm’s digital assets team .
Local cryptocurrency exchanges set up the Digital Asset Exchange Alliance (DAXA) to protect investors last June, after many were hit by the $40 billion crash in May of the terraUSD and moon coins developed by the disgraced South Korean crypto kingpin Do Kwon.
When lawsuits against Wemix exploded, DAXA – made up of the five major trading platforms Upbit, Bithumb, Coinone, Korbit and Gopax – decided to delist the coin in its first significant self-regulatory action, potentially setting a precedent for other exchanges. in the United States and Europe. But Wemade then filed an injunction against DAXA, arguing the move was anticompetitive.
Yulchon, who represented Bithumb, won the dispute arguing the decision was made to protect investors, pointing to Wemade’s inaccurate disclosure of the token’s circulation amount.
“It was the first lawsuit in Korea against a major coin issuer that sent false information,” Kim says. “It was a watershed ruling that demonstrated that securities regulations can also apply to digital tokens.” Wemix was eventually reinstated by Coinone in February after Wemade took corrective actions, including the buyback and cancellation of some tokens.
The people of South Korea have a huge interest in cryptocurrency trading. The Korean won accounts for 13% of global bitcoin trade. But the country’s lack of control over the cryptocurrency markets and issues involving wemix have made regulators realize the urgent need for legal safeguards.
In another case highlighting concerns over the behavior of cryptocurrency operators, Kang Jong-hyun, the de facto owner of Bithumb, has been charged with embezzlement, breach of trust and stock manipulation involving affiliates of the exchange. Yulchon does not represent Kang and Kang’s lawyer has denied the allegations in court.
Yulchon, the first major South Korean law firm to launch a digital assets team, in 2017, is helping DAXA issue more detailed guidelines for listing and delisting digital assets and advising the government to strengthen oversight of the buoyant digital assets sector. country’s cryptocurrencies.
In February, the government announced its guidelines for security tokens – digital forms of stocks and bonds – in a bid to improve confidence in the digital asset market.
However, several bills aimed at investor protection and transparent cryptocurrency transactions are still pending in parliament.
“Following the wemix delisting, token issuers are paying more attention to public disclosures and trying to follow DAXA guidelines,” Kim says.
“South Korea is becoming more proactive in creating the regulatory framework, but laws should pass quickly to protect investors.”
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