Uncovering the Upbit token listing effect: South Korean consortium, the biggest winner in this exchange compliance movement
Author: Irfan, Chaincatcher
In a country where cryptocurrencies are strictly and clearly regulated, Upbit has emerged as the biggest winner with its background and compliance capabilities.
Recently, South Korea’s Upbit has become one of the most talked-about cryptocurrency exchanges, with news of its new coin launch having a higher impact on coin prices than both Binance and Coinbase most of the time. Such a wealth effect has attracted a large number of investors.
The following chart shows the price change of the token after Upbit announced the launch of WEMIX：
Upbit’s new listing tokens almost always lead to instantaneous gains of 50% or even a doubling, so why, Upbit has such a strong “currency effect”?After research, the ChainCatcher reporter believes that this is closely related to the compliance of the exchange, the underlying resources, and the hot South Korean market.
The biggest beneficiaries of cryptocurrency exchange compliance in South Korea
Upbit’s “battle of fame” was the listing of new tokens on October 15, 2021, when the exchange announced listing SOL, MATIC, and NU, with NU rising up to 10x that day and MATIC rising up to almost 30%. On the same day, 1INCH and MASK were up by about 100%, while AAVE was up by about 50%.
Why did Upbit, which has been around for many years, suddenly explode on the market in October 2021? The reason has to do with the compliance of the Korea Exchange, which had lasted for nearly half a year.
South Korea has long been one of the most enthusiastic countries in the crypto market, and the concept of “kimchi premium” is well known. As a result, a large number of cryptocurrency exchanges have also emerged in Korea, and overseas exchanges such as Huobi and OKEx also tried to get a share of the pie for a while.
But since last year, South Korea’s regulation of the crypto market continues to intensify, especially on March 25, the special financial trading law, if it is a Korean market exchange, must meet at the same time get real-name confirmation deposit and withdrawal account also cooperation with the bank of Korea, and have ISMS (information protection management system) certification or anti-money laundering (AML) system these two to continue to provide services. Companies that fail to register their business will face up to five years in prison or can be fined up to 50 million won, after a September 25-month date.
Since 2021, regulation of the crypto market in South Korea has continued to tighten, particularly the Special Financial Transactions Act（《특정금융정보법》）, which officially came into effect on March 25, 2021. In the case of exchanges operating in the KRW market, they must meet both of the requirements of having their real name confirmed access accounts with a Korean bank and having an ISMS certification or AML system in order to continue to provide services. Firms that failed to register their business by September 25, face up to five years in prison or a fine of up to 50 million won.
Under the strict regulatory policy, only more than 40 virtual asset providers eventually submitted applications for registration and 29 successfully passed the review, of which only four fiat exchanges, Upbit, Korbit, Coinone and Bithumb, became compliant exchanges. This, coupled with the fact that more than 30 exchanges were forced to close after the regulation, means that cryptocurrency users who were relatively scattered across hundreds of exchanges will gather on these few exchanges.
Among them, Upbit became the first government-approved cryptocurrency exchange in South Korea when the virtual asset business report submitted by Upbit was passed on September 17. Following this, in order to fulfil its important duties under the anti-money laundering law, Upbit opened a public identity verification exercise for its large user base of more than 8 million users, requiring all users to complete authentication by October 13 or have their trading and withdrawal functions suspended by the platform.
Under strict regulatory policies, only more than 40 virtual asset providers finally submitted applications for registration, and 29 companies successfully passed the review, among which only Upbit, Korbit, Coinone and Bithumb became compliance exchanges. Some overseas exchanges have also been affected by regulation, with an insider in South Korea saying that even if crypto is not affected by transactions, it is difficult for overseas exchanges to obtain local users outside the circle. Plus, more than 30 exchanges were forced to close after the regulation, meaning that cryptocurrency users originally relatively scattered across hundreds of exchanges would gather on these exchanges.
Among them, Upbit’s virtual asset business report was approved on September 17, becoming the first of South Korea’s government-approved cryptocurrency exchanges. This followed the opening of a public identity verification exercise for Upbit’s user base of more than 8 million in order to fulfil its important duties under anti-money laundering. It required all users to complete authentication by October 13, 2021, or be suspended from the platform’s trading, deposit and withdrawal functions.
Upbit did not list any new tokens after listing GRT and SNX on April 16, and in addition, Upbit delisted a large number of tokens in response to the upcoming regulatory reform. It’s easy to understand why Upbit’s new token listing after a six-month hiatus immediately triggered a spike in tokens. On the one hand, there was a huge increase in user traffic, and on the other hand, users’ long-suppressed enthusiasm for investing in new tokens. These two aspects directly contributed to the surge in new token launches.
According to the exchange’s public data, the cumulative number of members who had completed identification as of October 2021 was 8.9 million, about three times more than the 3 million in October last year. And with a total population of 52 million people, this means Upbit has reached 17% user penetration in the Korean market, and Upbit only supports users who are 19 years of age or older.
Backed by a Korean consortium and rich in resources
Another major reason for Upbit’s success is the backing of the consortium. This includes Kakao Group and the new richest man in Korea, Kim Bangsoo, founder of Kakao Group, who has a fortune of over $13 billion.
In October 2017, Upbit was developed by South Korean fintech company Dunamu in partnership with the US crypto exchange Bittrex. And Dunamu is closely related to the Kakao Group.
Kakao is a top 10 Internet giant in terms of total market capitalization in South Korea, and Kakao’s Kakao Talk is the largest social platform in South Korea, while its Kakao pay is also the largest third-party payment platform in South Korea, similar to Paypal.
Although Dunamu, which is under the pressure of regulatory scrutiny, made several public statements in September last year that it is not a subsidiary or affiliate of Kakao, the equity relationship between the two still indicates that the relationship is not simple.
According to publicly available information, although Kakao owns a relatively small 8.1 per cent of Dunamu, its VC arm Kakao Ventures’ K Cube №1 venture capital fund owns 11.7 per cent of its shares, in addition to 2.7 per cent owned by Kakao Youth Venture Fund. In other words, Kakao directly or indirectly owns about 23% of Dunamu’s shares. In addition, Lee Sir-goo, the CEO of Dunamu, is the former co-CEO of Kakao.
Therefore, Upbit, as an important part of Kakao’s business map, directly enjoys a huge potential customer base from Kakao. Currently, Upbit exchange is compatible with the entire Kakao ecosystem such as KakaoTalk and KakaoPay. Traders using Upbit can use Kakao Talk and Kakao Pay, which makes it easier for users to make initial transactions.
As an internet giant with a presence in various industries such as social, technology, gaming, entertainment, travel, and payments, Kakao has long incorporated the blockchain and crypto industries into its new development landscape. Kakao has established Ground X, Inc. and received a $90 million strategic investment in March 2019, Ground X is responsible for developing and operating Kakao’s public blockchain platform Klaytn, and the public chain token KLAY currently has a market cap of $3.4 billion in circulation.
Founded in 2012, Dunamu early focused on building security systems for Kakao, including Kakao Securities Plus and Kakao Securities MAP service. Since the launch of Upbit in 2017, it began to focus on the blockchain and crypto market, and also launched BaaS company Lambda256, Upbit NFT Beta, stock trading application Stockplus and so on. Its CEO also said at a recent online news conference that Dunamu targets a broader global market and will soon enter the U. S. market through the NFT business.
The South Korean crypto market is growing
The rise of Upbit is inextricably linked to the South Korean market’s preference for cryptocurrencies. According to industry tracker Coinhills, South Korea is one of the largest cryptocurrency trading markets in the world, and the Korean won is the third largest bitcoin trading fiat currency in the world after the U.S. dollar and the Euro.
Meanwhile, more and more young Koreans are flocking to this market. According to Upbit’s public data in October 2021, 31% of its user base is in their 20s, 29% in their 30s, and 24% in their 40s. However, in 2020, 39.8% of users are in their 30s, 24.1% in their 40s and 20.1% in their 20s. The percentage of those in their 20s and 30s rose from 20.1% to 31%, reflecting a significant rise in enthusiasm for crypto investments among the younger age group in Korea.
In response, Koo Jeong-woo, a professor of sociology at Sungkyunkwan University in Korea, believes that the Korean MZ generation is facing tough competition for jobs while attending college in the midst of fierce competition. In addition, with the instability of jobs and the rapid rise of housing prices, young people are always faced with a sense of crisis that “there are no more opportunities to make money”, leading to a strong speculative mentality and gambling. Investment is considered to be the only social ladder for class mobility, and the emerging market of cryptocurrency trading has given them a new stimulus.
As a result, South Korea has now become one of the key global crypto marketplaces. In addition to exchanges such as Upbit, South Korea also has venture capitalist Hashed, Terra public chain, Klaytn public chain and ICON public chain, all of which are trying to make a bigger impact in the crypto industry.