Wemade, a South Korean Web3 game developer, has refuted allegations of coin over-issuance fraud amid an investigation by the Seoul Southern District Prosecutors’ Office's financial investigation department. The allegations suggest that Wemade may have violated local reporting rules by withholding private keys from users.
In an official announcement on Feb. 8, the team behind Wemade's token WEMIX asserted that its digital asset storage system, Play Wallet, and the affiliated decentralized exchange PNIX DEX are exempt from compliance requirements mandating registration with authorities for virtual asset service providers.
According to South Korean regulations, crypto service platforms are obligated to register and report, except in cases where they do not control user assets via private keys. Wemade, which transitioned from a game developer to issuing its token WEMIX and blockchain mainnet, claims exemption from reporting requirements based on this criterion.
The investigation by South Korean prosecutors is focusing on suspicions of unfair profits by potentially circumventing regulations. The prosecutors are examining whether Wemade's PNIX decentralized exchange and Play Wallet storage system withhold private keys from users, which could breach reporting obligations.
Wemade contends that all wallet services provided by the Wemix team are decentralized, with no control over personal encryption keys, thereby exempting them from virtual asset transfer, storage, or exchange activities that require reporting.
Regarding PNIX DEX, Wemade explains that it serves as a platform for buy and sell proposals and transaction facilitation, with assets stored in smart contracts beyond the control of the business operator. Consequently, virtual asset exchange occurs through individual transactions between users.
The Financial Intelligence Unit, responsible for overseeing the local financial sector, has also initiated an investigation into Wemade following similar complaints.
Despite the regulatory scrutiny, Wemade's parent company launched a $100 million Web3 fund in partnership with a Singaporean venture capital fund, aiming to invest in digital asset projects in the Middle East. Wemade, known for its popular Legend of Mir series, asserts that Mir 4, released in 2021, was the most successful blockchain game at the time.
As the investigation unfolds, Wemade continues to maintain its innocence and adherence to regulatory standards while emphasizing its commitment to decentralized services and blockchain innovation.