The virtual asset exchange Bithumb has been confirmed to provide special rewards to VIP members who conduct numerous transactions to inflate the trading volume of certain virtual assets. In particular, there are concerns about the possibility of market manipulation as they encourage liquidity provision only for specific items. There are also criticisms that the trading volume of these items is distorted, potentially providing misleading trading information to the majority of members.
According to the virtual asset industry on the 8th, Bithumb is paying out the 'special maker reward' that was officially discontinued on June 1 to certain members with high trading volumes. Bithumb informs the selected investors about a special member-only event, and if they provide liquidity for certain items, they can receive 500,000 won per day per item. Investors who receive the message can earn a total of 2.5 million won per day by engaging in maker activities for five items introduced by Bithumb.
◇ Virtual asset market, makers provide liquidity
Maker rewards are a system that provides compensation to users who supply liquidity to a virtual asset exchange. A trader who places limit orders on the exchange to create quotes is called a 'maker,' while a trader who immediately executes registered quotes is referred to as a 'taker.'
A maker can set limit orders by stating, for example, 'I will sell A coin for 9 million won' or 'I will buy it for 8.99 million won,' and these orders go on the exchange's order book, forming buying and selling quotes. When someone executes these formed quotes, the maker's order is fulfilled, and this process supplies liquidity to the market. The more maker orders there are, the richer the order book becomes, enhancing price stability and the likelihood of transactions on the exchange.
A virtual asset exchange must have high trading volumes and liquidity to be competitive. Bithumb, which is preparing for an initial public offering (IPO), needs to increase key indicators of its exchange value, including trading volume, liquidity, and market share. To boost its market share, Bithumb spends nearly 10 billion won on marketing each quarter.
Unlike capital markets where market-making activities (market making) are impossible, virtual asset exchanges use the maker-taker system as a means of providing liquidity. In fact, global exchanges like Binance and the bankrupt FTX temporarily increased their trading volumes through maker rewards or fee incentives.
◇ Rewards provided only to selected VIP members
The problem is that Bithumb, which officially ended the maker rewards, is selectively providing rewards to some chosen VIP members. Because of this, only certain members can receive compensation, and those not receiving rewards are left trading under relatively unfavorable conditions. Bithumb sent messages to selected members stating that they would receive rewards for providing liquidity for specific virtual assets.
Moreover, the items for which maker rewards are provided are not well-known virtual assets like Bitcoin or Ethereum but rather 'minor coins' such as Siacoin and Boa coin, which investors are not familiar with. Looking at the 24-hour trading volumes of these items, Siacoin was at 83 million won and Boa at 87 million won as of 3 p.m. the previous day. Meanwhile, the trading volumes for Ripple and Tether at the same time were 87.8 billion won and 72.1 billion won, respectively.
Examining the trading volume chart of Siacoin, one of the target virtual assets during the event period, it shows that the daily trading volume was only 25 million won on June 19, before the start of the event, but it surged to ▲131.3 billion won on June 21, ▲119.9 billion won on June 22, and ▲85.1 billion won on June 25. Immediately after the event ended on the 2nd, the trading volume plummeted to around 3 million won.
Given that these coins have significantly smaller market caps and trading volumes compared to major virtual assets, general investors who are unaware that makers are supplying liquidity may see this surge in trading as substantial. This creates the illusion of active trading that is unrelated to actual investment demand, leading to potential harm for general investors due to phantom trading.
A Bithumb official noted, 'The event recently announced to some customers is unrelated to the official reward program and was a typical marketing activity operated on a limited basis according to internal criteria.' They added, 'Just like fee benefits or targeted events are commonly carried out in the securities market to stimulate transactions, this event is not likely to affect market prices or structure.'
A Financial Supervisory Service official stated, 'Korea's current virtual asset-related laws are still in the first stage, so there are no means to regulate the operating practices of exchanges, leaving it to their own discretion.' They added, 'We are gradually filling in the gaps in regulation, and if events like makers relate to suspicious trading or unfair trading, the authorities will definitely look into it.'