WEMIX Controversy Heads to Court

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Disclaimer: The contents of this report reflect the opinions of the author and are provided for informational purposes only. It is not written with the intent to recommend the purchase or sale of tokens or the use of protocols. Nothing contained in this report is investment advice and should not be construed as such.

The Kimchi Premium is a weekly series that looks back at the hottest topics in the Korean crypto community.

Top 2 Keywords

Kaiaswap
Chang Hyun-guk

This week, I am focusing on two very Korean keywords due to the lack of topics.

1. Kaiaswap Controversy

Kaia is a blockchain created as a joint venture between Klaytn (developed by Kakao) and Finschia (developed by LINE). Given the backing of these tech giants, expectations were high.

However, @KLAYcheck recently alleged that Kaiaswap misused DeFi ecosystem funds for wash trading and potentially engaged in insider trading by transferring funds to exchanges.

Kaiaswap responded, claiming the activities were part of market-making efforts and promising to introduce a real-time leaderboard for increased transparency.

Note: I don't fully grasp all the details of this situation, so my summary may lack some nuance. I can't determine which side is telling the truth. For more information, check the @KLAYcheck Telegram and Kaiaswap's blog.

Klaytn and Finschia, Kaia's predecessors, were once hailed as "corporate blockchains" but eventually merged amid controversy. The fact that such allegations are already surfacing makes this a noteworthy development.

For more on the Klaytn-Finschia merger, I recommend shubit's article: An Awkward Friendship: Klaytn X Finschia.

2. Chang Hyun-guk (Henry Chang)

For those unfamiliar with WEMIX, here's some background from shubit's article:

WEMIX is a blockchain L1 developed by Wemade tree, a subsidiary of another Korean game company, Wemade. To give a bit more context about Wemade, it's a company with substantial presence, known for creating the game “Mir”, which was once the top national game in China. (Later, Wemix launched Mir as a P2E version that is called MIR4 and made a great success.) Although Wemade it doesn't rank among the “Big 3” gaming companies in Korea (Nexon, NC Soft, Netmarble), it's an okay game company.

Chang Hyun-guk, former CEO of WeMade and the driving force behind WEMIX, was indicted in August 2024 for allegedly manipulating WEMIX token circulation.

The first trial, held on September 24th, saw prosecutors accuse Chang of violating capital market laws by:

Falsely announcing the suspension of WEMIX liquidations on January 28 and February 9, 2022
In reality, still had the intent to liquidate the tokens
Subsequently liquidating about 300 billion won worth of WEMIX
Unfairly profiting from WeMade stock price gains and preventing WEMIX price drops

Chang denied all charges. His defense argued that the liquidity suspension didn't impact WEMIX prices and that there's no causal link to WeMade stock manipulation.

Interestingly, Chang's lawyers, from the prestigious Kim & Chang law firm, resigned immediately after the first trial, drawing even more attention to the case.

The chart and tears are all in logarithmic scale

In 2022, amid circulation controversies, Upbit delisted WEMIX. Chang tearfully decried this as unfair during a YouTube live stream. WEMIX subsequently plummeted by about 70%.

As WEMIX was particularly popular in Korea, this marked a significant moment in the Korean crypto market, with public opinion sharply divided on the delisting.

WEMIX token holders protested at Upbit's headquarters, demanding answers about the lack of guidelines for delisting, the absence of a clear definition for token circulation, and the perceived violation of investor rights under the guise of protection.

WEMIX holders protesting in front of the Upbit headquarters

The controversy surrounding Chang and WEMIX highlights ongoing debates about token circulation definitions, the role of self-regulatory bodies like DAXA, and the current state of the crypto market's regulatory gray areas.

It's worth noting that in Korea, companies lose their venture business certification if they obtain a virtual asset service provider (VASP) license. This puts crypto businesses in the same category as gambling dens and illegal game developers.

While Korea boasts one of the world's largest trading volumes, the regulatory environment and public perception remain largely negative and underdeveloped. It remains to be seen whether the government can establish proper regulations and if the crypto industry can win over public opinion.