September 27, 2023

Upbit Listings: Kimchi Premium or Pump and Dump?

Upbit is the largest centralized exchange (CEX) in South Korea. Exclusive to Korean residents, Upbit allows its users to exchange South Korean won for crypto tokens. The CEX currently lists 190 digital assets, which users can buy across 297 spot trading pairs.

Recently, Upbit has been linked to many token capital-centric pumps. Several observers attribute listing-related pumps on Upbit to the so-called "kimchi premium," which refers to the gap in crypto token prices on South Korean exchanges compared to the rates on global exchanges. This phenomenon, named after a popular Korean side dish, was first observed in Bitcoin prices as early as 2016.

While recent Bitcoin prices in South Korea are not far from the global rate, the "kimchi premium" phenomenon remains alive, this time through new token listings in the country's exchanges, like Upbit. On several occasions this year, tokens that are listed on Upbit experience a rapid price increase soon after their addition to the CEX, presumably driven by the high interest of the exchange's users on the newly listed tokens. As a result, Upbit has gained a crypto listing reputation similar to that of Binance.

Upbit's focus on the South Korean market is one of its unique advantages as an exchange. What drives the "kimchi premium" is the market's more receptive attitude towards crypto. About 40% of respondents in a survey by The Korea Herald said that they have invested in crypto tokens. South Koreans are adept at micropayments and gaming, making them more adaptable to Web3.

While the South Korean market is a major factor in the Upbit boost for newly listed crypto tokens, we also found that the exchange itself has some curious procedures that set them apart from other exchanges. Some of these procedures put Upbit at an advantage in terms of trading volumes and other factors.

In this article, we will take a closer look at the recent price surges for several crypto tokens that have been listed on Upbit over the past six months. We will also discuss Upbit's unique token holding strategy for its listed tokens, as well as the advantages and implications that this action brings to the exchange.

Recent token pumps on Upbit

Based on the information in the table above, the 0xScope team observed the following:

Listing tokens on Upbit doesn't automatically translate to pumps. In the case of Sei ($SEI) and Sui ($SUI), these two tokens were listed on Upbit around the same time they debuted on other exchanges. Despite the underperformance of the two tokens compared to other newly listed tokens that rapidly rose in value, Upbit still accounts for the highest trading volumes for the two tokens.

In the case of the nine other tokens that launched on Upbit after being previously listed on other exchanges, the story is different. There's a noticeable increase in the prices of these tokens within one week or less after listing on Upbit. The most stark example of this is CyberConnect ($CYBER), which rose by 400% within the week of its Upbit listing.

Upbit is the exchange with the highest trading volume for at least two of the recently listed tokens: Blur ($BLUR) and ImmutableX ($IMX). As mentioned earlier, the South Korean crypto market is more receptive towards altcoins, seeing them as opportunities to grow their net worth. Hence, trending tokens such as $BLUR, which made a major impact in the NFT marketplace industry, and $IMX, which is gaining popularity as the tech behind a growing Web3 gaming scene, would likely appeal to the demographic of South Korean traders.

Perhaps the most concerning part of the Upbit boost is that some of the boosted tokens exhibit pump-and-dump trading patterns. Specifically, tokens that sharply rose in price after being added to Upbit would see notable declines after a bullish week. Whether this is standard market-driven behavior or a sign of bigger forces at play, it is undeniable that the Upbit boost is too short-lived to drive real growth for projects, but quick and sharp enough for traders to make profits.

Next, we'll look into each recently-listed token and share our insights on their price movements and other exchange-related data.

Emerging trends on Upbit listings

Moonbeam ($GLMR) - Latest example of Upbit boost

Moonbeam, a smart contract platform for cross-chain apps on Polkadot, has increased its price by as much as 55% since Upbit listed the token on September 25. The next day, trading volume reached $139M, a level that hasn't been seen since April 2022. The upswing resulted in rising network costs for $GLMR, driving Upbit to increase the token's withdrawal fee by 10x. It remains to be seen whether $GLMR bucks the trend of short-lived price increases prevalent in new Upbit listings.

CyberConnect ($CYBER) - Kimchi premium in action

Perhaps the most high-profile demonstration of the "kimchi premium" is Web3 social graph protocol CyberConnect ($CYBER), which surged by about 400% following its listing on Upbit on August 22.. During this surge, Upbit was reported to be the biggest holder of $CYBER, with 3.8M tokens under its custody. On September 1, amid $CYBER's bullish run, the 0xScope team noted that the token was trading at a price that's 75% above the global market.

Unfortunately, the next day, $CYBER surrendered most of its gains and has been on a downtrend since.

Sei ($SEI) and Sui ($SUI) - Upbit emerges as top trading volume venue

While Layer-1 blockchain projects Sei ($SEI) and Sui ($SUI) were not able to boost their prices following their respective listings on Upbit, the South Korean exchange has since become the biggest source of trading volume for the tokens. Upbit's $SEI market is twice as big as the next-biggest market on Binance, while the South Korean exchange's $SUI market outpaces the next-biggest market by $10M.

ImmutableX ($IMX) and Blur ($BLUR) - Upbit accumulation

Web3 gaming infrastructure project ImmutableX ($IMX) experienced the Upbit boost in two different ways. The project saw a more gradual uptrend that lasted for three days after its Upbit listing on July 28. Months later, the 0xScope team observed that Upbit accumulated $16.3M worth of $IMX tokens, surpassing all other CEXs except Binance. Since then, $IMX increased its price by 30%.

The Upbit boost for NFT marketplace project Blur ($BLUR) was more short-lived, disappearing in a matter of hours. What's more interesting is that months after $BLUR's June 27 listing, Upbit emerged as the second-largest holder of $BLUR (after OKX) after a month-long pattern of consolidating a total of $17.15M worth of tokens.

Several tokens - Fast rises, even faster falls

We're seeing a pattern emerge for most of the Upbit-listed tokens, particularly a short boost that lasts for less than a day. In most cases, the gains recorded immediately after the Upbit listing have been wiped out in a matter of hours. We have also observed that the sharp price declines coincide with the moments when trading volumes get closer to their peaks. Here are some examples:

The short-lived nature of the Upbit boost, as shown in the examples above, reflects the manner in which Upbit traders treat each new token as an opportunity to capitalize on the listing hype. With the exception of $ARB, whose large volume likely mitigated the impact of trading on Upbit, the newly-listed tokens experience sharp price decreases by the moment they hit peak volumes after the listing. In other words, the Upbit "kimchi premium" tends to be short-lived and oriented towards profit-taking.

But aside from Upbit users' trading activity, there is another factor that possibly affects token prices and movements: Upbit's handling of user deposits and withdrawals.

Upbit's has a different process for handling tokens

There is another factor behind the price pumps on Upbit's newly listed tokens: the exchange's token storage strategy. Unlike other exchanges, whose hot wallets typically contain different cryptocurrencies, Upbit allocates one hot wallet for each token. As a result, on-chain trackers have a harder time monitoring Upbit's on-chain assets and movements.

Upbit also processes crypto deposits in a way that's unusual for typical exchanges. Normally, a CEX like Binance or OKX would process user deposits this way:

The exchange user sends funds to a deposit address

The deposit address sends the funds to the exchange's hot wallet.

Most of the time, the deposit address can accept different tokens, so hot wallets will mostly store many different tokens.

Upbit does things differently. The listed token (in this case: $IMX) will withdraw from multiple sources (mostly CEXs) until all tokens are consolidated into a single address for storage. This is a typical Upbit token accumulating moneyflow chart, which you can also see on Scopescan.

Because of this, Upbit's hot wallets end up becoming the top externally-owned address (EOA) among holders of several tokens. Here is another example, this time for DeFi project Hifi Finance ($HIFI):

Upbit's withdrawal procedures are also different from those seen on other exchanges. It appears that the exchange is leveraging the liquidity of other bigger exchanges to process some of their transactions. In this context, Upbit receives the withdrawal order in its own exchange, then uses the order book liquidity of another exchange. Simply put, Upbit keeps track of its users' assets values, while the actual trades happen on another CEX.

This procedure is evident in the moneyflow chart of Upbit's hot wallet for $HIFI. In this chart, Upbit is shown to have sent tokets to different EOAs, and those tokens end up being sent to other exchanges' deposit addresses.

It is likely that some of the volume boosts that Upbit exhibits for new token listings are influenced by its user deposit and withdrawal procedures. The exchange has possibly leveraged volume from other exchanges and its unique way of consolidating tokens to influence price movements. While this can be considered as typical CEX behavior, Upbit's processes make its overall token handling procedures more opaque. After all, it is harder to tell whether all of Upbit's holdings on a particular token are indeed driven by trading activity, because Upbit can theoretically sneak in some additional tokens from its own holdings to boost its standing as the market leader for the trading of certain tokens. A deeper investigation is needed to verify and account for Upbit's token holdings.

In conclusion, Upbit is emerging as an exchange to watch, whether due to the quick price boost it gives to newly listed tokens or because of the insights and possible implications brought along by the the way it operates its hot wallets.

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