Korean Cryptocurrency Exchange Listing Support Guidelines
Analyzing the the top five exchanges in Korea
TL;DR
The market share of crypto exchanges in South Korea is reaching global significance, and the high purchasing power and enthusiasm for cryptocurrencies among South Koreans making the market more attractive day by day.
As a result, many cryptocurrency projects are moving to list on Korean exchanges and are making great efforts to pass the strict procedure. It consists of mainly four parts: 1) searching for the appropriate cryptocurrency project to list, 2) listing review, 3) deliberation, and 4) listing.
The current process in Korea is already considered to be quite demanding, but this is only the beginning. Due to a series of negative incidents such as backroom listing issues, the standards are expected to become much stricter.
The Korean market is only getting hotter
Recently, the market share of Korean cryptocurrency exchanges has reached a globally significant level. 'Upbit', the market leader, has surpassed OKX and Coinbase in terms of trading volume as of July 2023, ranking second globally. Bithumb and Coinone are also showing high trading volume growth of 27.9% and 4.72%, respectively.
The domestic market is becoming more attractive due to the high purchasing power and enthusiasm of Korean investors. Naturally, it is expected that the interest of many cryptocurrency projects in listing on the Korean market will only grow even more.
Increased demand for listings from the top five exchanges in Korea
Among domestic cryptocurrency exchanges, the demand for listing around the five major exchanges that allow KRW trading (Upbit, Bithumb, Coinone, Korbit, and Gopax) is expected to explode. This is due to the fact these exchanges have a much higher number of users than other exchanges, high trading liquidity, and a strong perception that they are relatively safe amidst ongoing government regulations.
Listing process for the top 5 domestic exchanges
Currently, the five major exchanges in Korea operate a self-regulatory organization called the Digital Assets eXchange Alliance (DAXA) for the purpose of establishing voluntary regulations regarding investor protection and listing regulations. The organization has defined the essential tasks that each member company must perform when reviewing new projects, mainly focusing on 1) investor protection through risk assessment of virtual assets, 2) whether the virtual asset under review is a security, and 3) the possibility of money laundering. However, these are the common minimum criteria, and each exchange may have additional criteria or procedures.
The following is a visualization of the listing process of the top five exchanges in Korea, which consists of four procedures: 1) Search for cryptocurrency project, 2) Listing review, 3) deliberation, and 4) listing.
1) Searching for listing candidates
First, crypto exchanges use both internal and external channels to select candidates for listing. Each exchange operates a dedicated research team to help list cryptocurrency projects that have proven their business viability. In fact, all five exchanges in Korea have research centers or dedicated internal teams1. Additionally, they all operate through official channels (homepage, email, etc.) to receive applications from projects for listing.
2) Listing review
Exchanges will conduct a preliminary review of projects submitted through each channel before shortlisting them for trading. This is to ensure that there are no significant disqualifying factors before entering the full review phase. Due to the high volume of listing inquiries, the pre-screening process is essential for efficient response.
The pre-review process varies by exchange, but it usually requires basic information about the project, including the following items. For some exchanges, such as Upbit and Coinone, require a domestic legal opinion to confirm the project's securitization from the beginning stages. This indicates how much domestic exchanges take the issue of securities seriously.
Required documents/information during the preliminary review stage
Project team: legal structure of the project, including the issuer, shareholder list, certificate of incorporation, etc.
Technology and development: Github-related information, technical audit reports, etc.
Project information: project name, homepage, whitepaper, project introduction, etc.
Community: Twitter, Discord, Telegram, Medium, etc.
Digital assets: token name, token classification and standard, token smart contract address, token utility, token circulation and distribution plan information, etc.
Legal matters: legal opinions on securitization.
Only projects that have passed the preliminary review stage will be subject to an in-depth review. At this stage, quantitative and qualitative indicators are required to confirm the project's viability and marketability. Further inspection is conducted by the in-house staff, including compliance with the DAXA Common Guidelines for listing, securitization, and money laundering risk assessment.
Specifically, each exchange has its own dedicated AML team that conducts the assessment and actively recruits AML professionals from the financial sector, including internal personnel who have obtained the CAMS certification, as well as AML professionals from existing financial institutions. According to recent announcements, Upbit has about 40 AML professionals, Bithumb has 36, Coinone and Korbit have 13, and Gopax has 11.
3) Final deliberation
Once a project passes the screening stage, the final decision on whether to list is made by a review committee composed of experts from outside and inside the exchange. The main evaluation points are: 1) the eligibility of the cryptocurrency project, and 2) legal risk assessment.
Prior to the announcement of the DAXA Voluntary Improvements in September 2022, there were no clear regulations on the composition of review committees. Now there are standards that 1) they must include at least two external experts or consist of 30% of the committee, and 2) they must include at least one legal expert (lawyer, JD, etc.) who can assess legal risks. Accordingly, each exchange has organized a review committee based on strict qualification requirements, including blockchain industry experts and people from the traditional financial sector.
4) Listing
Each exchange operates a system to assess risk factors through continuous monitoring even after projects have been approved for listing, in order to protect investors in the volatile crypto market.
Each exchange goes through a rigorous screening process to identify, perform due diligence, and vote on candidates for listing. This may involve onboarding external and internal experts to conduct a thorough review. Some cases may even involve evaluation reports from external advisors. For example, exchanges selectively utilize external evaluation reports from 1) KORating, 2) Blockweiss Ratings, and 3) Token Insight.
Strict procedures, shaky regulations
Korean exchanges have established and are operating a strict screening system as a result of intense government scrutiny and self-regulation measures. The screening process is quite demanding, and some have raised concerns that it may adversely affect the growth of the cryptocurrency market. However, considering the fact that the number of new listing increased by twofold the first half of 2023 compared to the latter half of 2022, it is difficult to say that it has hindered market growth.
In fact, there is a growing consensus that stricter standards are necessary. This is because there are still brokers in the market that provide listing services in an unauthorized form, and some exchange listings are being carried out in an illict manner. Moreover, it was recently revealed that there ware at least 46 projects in which employees of Coinone, received money to facilitate listing. As such, the issue of moral hazard for internal stakeholders is still unavoidable, and there are still improvements to be made for fairness and transparency. Therefore, there is a need for exchanges to supplement the current trading support procedures in a more rigorous manne. It is also expected that there will be pressure from the government to supplement the system for each exchange to create a safe investment environment.
The top five exchanges in Korea, Upbit, Bithumb, Coinone, Korbit, and Gopax, all have research centers. However, Bithumb had reduced its research staff by dismantling its research center and absorbing it into the main body, citing deteriorating profitability.