New KuCoin Crypto Exchange Controversy Arises Regarding Artificially Faking Trading Volumes

Recent Offers For “Volume Boosting” From KuCoin Leads To Speculation Of Wash Trading

In a new report from The Block, the KuCoin exchange apparently decided to delist 16 tokens at the same time last year. Realistically, the tokens themselves simply were not profitable, and the lack of trade volume amongst the platforms 5 million registered users was enough for them to be kicked off the platform. However, the story may have gone much further, considering a recent ultimatum given to other coins on the platform.

The Block discovered that KuCoin had threatened a minimum of four projects with delisting unless they are able to pay about $180,000 in volume-boosting fees. Apparently, the tokens fell to the bottom 18% in daily trades, and KuCoin punished them by subjecting the tokens to “Special Treatment rules.” Sources say that the only way to recover from this spot is to pump volume with “any means necessary.”

The impacted project allegedly includes Jibrel, Encrypgen, and Unikrn. COO Talal Tabbaa of Jibrel said,

“We received an email saying ‘you have the ability to improve your volume or you’ll be delisted. Then they recommended market-making firms that would help us reach the minimum daily volumes they set for projects. I was honestly shocked at the requests they were making.”

Tabbaa added that KuCoin referred the platform to two of their supposed affiliates that did “listing and marketing” for them.

KuCoin also said that the affiliates would be able to help the project to reach their minimum trading requirements and keep their listing.

Tabbaa added, “It was basically to do wash trading. I’m 100% sure. Whenever there’s a volume guarantee, you know there’s something wrong.”

When KuCoin was reached by The Block, they admitted that the person who wrote the emails to Jibrel is a current employee. However, Tabbaa ultimately turned down the proposal to pay $180,000 a year, saying that they wanted to invoke “natural demand,” instead of participating in an unsavory activity that could result in major damage to their own project.

The CEO for Encrypgen, David Koepsell, had a similar story about KuCoin, saying that the platform had urged them to use “an extensive marketing campaign” to increase their volume.

In speaking with The Block, Koepsell added,

“They sent messages to us saying we were having issues with our volume and would we be interested in paying for market making.” The Block obtained their emails as well, showing a pitch of $90,000 for the package, which Koepsell would not pay. The Encrypgen token has since been removed. Koepsell added, “They buy a bunch and then sell a bunch at the market just to get the volume.”

Publica, a book-lending service, was another victim of the backroom delisting negotiations. CTO Yuri Pimenov said that their company ended up under the Special Treatment rules, but they chose to accept the offer, unlike the other two companies listed above. Soon after, the fees that they agreed on ballooned, and the project had declined to comment on the situation to The Block.

CEO of Unikrn, Rahul Sood, said that he received the offer from KuCoin as well. Though they refused to pay, KuCoin did not delist them.

Sood said, “We’re building a legit business here. We’re not trying to build a marketplace for our token.”

The KuCoin proposed marketing offers have been much different than what traditional liquidity providers offer, according to CEO Dave Weisberger of Coinroutes. He told The Block,

“Providing volume is bad. It makes it look like there’s more interest than there is and to eventually be complicit in creating false impressions about how the coin trades. An exchange by its definition is meant to be a neutral party. Taking the other side of trades makes a massive conflict of interest in that model. Any market making subsidiary would need to have information barriers, and be audited.”

If the connection that KuCoin offered was with a regulated department of the firm or with legitimate market markers. In traditional finance, a market mater is meant to purchase and/or sell regular stocks. The maker gets a spread and only deals with a short-term risk. However, in China, this action is actually wash trading, an illegal act for securities and commodities in the United States. Sylvain Ribes, a crypto analyst, explained, “It sounds like wash trading, trading against yourself to inflate volume figures…You can washtrade millions of dollars, it will do nothing to boost your liquidity.”

Weisberger added that, without demand for the stock, it is just volume-pumping activity. Elaborating, he said,

“If you’re faking volume, you’re doing it for one of two reasons. You’re doing it to get listing fees, so the founders can get rich off of the poor sods buying the coin thinking there’s interest. Or because …. you bought the coin and you want the price to go higher. In both cases, you’re committing fraud.”

Any action taken to create artificial volume is not legitimate, considering how it fools investors of the true value of any company or asset. Even though there are plenty of authentic marketing campaigns, misrepresenting the asset in a way that is “designed to pay traders to generate volume without any investment interest” isn’t legitimate, according to Weisberger then that would fall into the category of NOT legitimate.”

KuCoin was approached for comments by The Block, but they only real comments it made is that it was “pretty sure” that the platform did not offer market making services to this extent. Representatives have suggested that the emails came from fraudulent email addresses, even though the platform said that the email did come from one of their employees.

A representative added, “If the emails are truly from KuCoin staff, we would definitely take actions to deal with behaviors that violate our company policy.”

Still, it is important to point out that all of the delisted projects weren’t necessarily having issues with their volume and did not all receive these offers. That leads to another potential issue, saying that this issue can go outside of the KuCoin platform.

OKEx, another exchange in Hong Kong, offered similar options but with more discretion while asking for “trading fees,” though it’s possible that this is just another way to say, “volume trading.”

Ribes, speaking on the making of markets by exchanges, said,

“My instinct is they’re all doing it.” He added, “I’m very surprised by how many people still believe in so many ridiculous assets…They don’t care about wash trading…They’ll continue until they run out of money.”

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