List me, then dump me
Why did S. Korean exchanges suddenly dump token projects after listing as many as possible?
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임준혁 2021년 8월20일 10:39
업비트, 빗썸, 코인원, 코빗 등 국내 4대 암호화폐 거래소 로고. 출처=각 거래소.
The logos of the Big 4. Source=Each respective exchange's website

[Second of two-part series]

In the first addition to this piece, we explored how South Korea’s largest crypto exchanges rushed to list as many token projects as possible throughout the last year to maximize their transaction volume, which meant more transaction fees. 

We focused on the Big 4: Upbit, Bithumb, Coinone, and Korbit.

In January 2020, the Big 4 had 476 supported trading pairs. This figure rose steadily throughout the following year, peaking at 781 in June 2021 and then settling down to 749 as of Aug. 10 of this year. At one point, Upbit, Bithumb and Coinone were listing as many as 15 to 20 tokens a month. 

This resulted in the Big 4’s cumulative trade volume more than quadrupling in just three months: from 304 trillion won (around $260 billion) in January 2021 to 1.32 quadrillion won ($1.1 billion) in April. 

Korbit remained relatively conservative during a period when its competitors were swarming in a mad listing rush. However, they lost out on spectacular profits. As of Aug. 13, Korbit’s trade volume accounts for a mere 0.5% of Upbit’s. Upbit has always been the leader of the pack in terms of trade volume and number of token projects listed. 

Since June of this year, however, exchanges have switched from a listing rush to a delisting dump.

Upbit, which ushered in the listing era, also led the way in delisting.

In June, Upbit delisted 32 token projects. Bithumb followed suit by delisting five in the same month.

Coinone, however, has only delisted one project since May 2021. It remains to be seen whether they’ll delist more as the deadline for FTRA registration approaches.

Korbit, which currently only supports 47 trading pairs, largely stayed out of the listing rush.


Korean market dominated by young people trading altcoins

Obviously, all the delisted tokens were all altcoins. According to an anonymous employee at one of the Big 4, “over 90% of South Korea’s crypto trade volume is in altcoins.”

This means that it’s profitable for exchanges to list as many altcoins as possible to maximize trade volume, hence the listing rush.

Over 60% of traders on the Big 4 are in the 20s and 30s. Many of them likely turn to altcoins as a potential way to get rich quickly. In fact, signs indicate that many young Koreans view crypto as the main way out of a life of drudgery in a market where most young people will never be able to afford their own homes, even if they have a decent job.

Fun (or not so fun) fact: Young Koreans are often referred to as the “Sampo Generation.” Sampo is a neologism that combines the words for “three” and “giving up.” In short, young Koreans seem to have given up on the three basic tenets of what used to be considered a normal life: courtship, marriage, and kids.

The term has since been modified to “Sapo,” or “four giving up,” meaning they’ve given up the additional rite of home ownership. But the saddest evolution of the term is “N-po,” which indicates there’s an indefinite number of things young Koreans have simply given up on, including employment. 

The Sampo phenomenon is intimately tied to South Korea’s population decline

June’s delisting dump likely spoiled the get-rich-quick aspirations for many Sampo hustlers. Some of the altcoins delisted by Upbit and Bithumb plummeted in value by as much as 50% within days of being delisted. Developer and project leaders lashed out, protesting what they saw as sudden, unjustified delistings that came with no forewarning. Some even threatened lawsuits.

Source: Antoine Giret/Unsplash
Source: Antoine Giret/Unsplash

Why change course so abruptly?

The answer lies within a topic that’s been popping up in the Korean crypto community a lot this year: the Financial Transactions Reports Act (FTRA).

The FTRA requires domestic exchanges to register under the Financial Intelligence Unit (FIU) of the Financial Service Commission (FSC) by Sept. 24. Any exchanges that fail to register by the deadline will be shut down.

“Registration” is a deceptive term, however. It'd be more suitable to think of it as a licensing regime. The FIU will only accept registrations from exchanges that meet certain conditions, such as secured partnerships with domestic banks, fortified anti-money laundering (AML) systems and know-your-customer (KYC) protocols, and demonstrated network security.

Since the FSC and the FIU have the ultimate say, exchanges have been hanging on to their every word. A “suggestion” or “recommendation” from financial regulators will likely be interpreted as a requirement.

The timing of Upbit's delisting aligns with a meeting the FIU held with exchange leaders on this past June 4. During this meeting, the FIU conveyed a set of "guidelines" for registration. These guidelines instructed exchanges to take note of all token projects that could be categorized as "suspicious" or susceptible to scams. In simple terms, the guidelines said: If you have too many coins that we consider fishy, then we probably won’t accept your registration.

Upbit’s delisting dump came later that month. 

But if these tokens were “suspicious” enough to dump ahead of regulatory scrutiny, why did exchanges list them in the first place -- and so many, at that? The FTRA was amended to apply to the crypto industry last year, and it was no secret that regulators were going to scrutinize exchanges’ operations before accepting their registration. 

Rumblings in the industry whisper a common theme: they listed as many projects as possible while the going was good, then dumped them when they became inconvenient, leaving ambitious retail investors in the dust. 

Explosions in trade volume for the Big 4 reveals that this strategy paid off -- at least in the short term. But as the FSC recently announced that no exchanges currently meet all the conditions for FIU registration, it remains to be seen whether the listing rush will hurt any of the Big 4 in the long run. Traders should also keep an eye out for further delistings.

All eyes in the Korean crypto community are locked on a single date: Sept. 24.

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