[Circulating Supply Series #2] Addressing Ongoing Circulating Supply Controversies

JiSung Junget al 1
Research Associate/
Nov 24, 2023

Table of Contents

1. Circulating Supply Controversies

2. Compilation of Circulating Supply Issues

3. Causes Behind Ongoing Circulating Supply Issues

4. The Need for Clear Standards and Regulatory Guidelines for Circulating Supply

Appendix. Analysis of Inconsistencies in Circulating Supply


1. Circulating Supply Controversies

During the parliamentary audit of the Financial Supervisory Service on October 17, crypto assets were once again brought to attention, following discussions from the previous year. Representative Min Byung-deok of the Democratic Party expressed concerns to Chairman Lee Bok-hyun of the Financial Supervisory Service, noting that SUI tokens listed on domestic exchanges are increasing their circulating supply by staking tokens that should remain non-circulating. He highlighted criticism towards the Digital Asset eXchange Alliance (DAXA), a digital asset exchange consortium, for neglecting token circulating supply management. This marks the second consecutive year that issues related to the circulating supply of crypto assets have undergone scrutiny during the parliamentary audit, following last year's Terra-Luna incident caused by the exponentially increasing issuance of Luna tokens.

With incidents like the Terra-Luna incident from the previous year and the subsequent WEMIX circulating supply incident, Korean investors' interest in the circulating supply of crypto assets has reached unprecedented levels. As a result, discussions on circulating supply are more actively occurring domestically compared to international markets. In the first part of the circulating supply series, titled "[Circulating Supply Series#1] Circulating Supply: The Canary in the Crypto Mine," we delved into the origin and importance of the concept of circulating supply, considering it as the “canary in the coal mine” of the crypto asset market. In the second part of this circulating supply series, we aim to analyze the facts surrounding incidents that led to circulating supply controversies and discuss why incidents related to circulating supply continue to persist. For a detailed analysis of individual cases, please refer to the Appendix at the end of the article.


2. Compilation of Circulating Supply Issues

2-1. SUI: Inadequate disclosure of circulating supply and ambiguous criteria for non-circulating supply

On June 27, a Twitter user raised suspicions that the SUI Foundation was staking locked-up tokens and dumping the staking rewards on exchanges. Despite the foundation's assertion that it follows its circulating supply plan and has not sold staking rewards, community suspicions persisted. Concerns also emerged regarding the potential further liquidation of SUI tokens. These allegations were even discussed during parliamentary audits led by Representative Min Byung-deok, prompting the foundation to issue additional clarifications regarding the liquidation of SUI tokens. The timeline of suspicions related to the circulating supply of SUI tokens is detailed below.

Concerning the circulating supply of the SUI token, suspicions against the SUIFoundation can be categorized into three issues: 1) inadequate disclosure of circulating supply, 2) staking of locked-up tokens and the circulation of staking rewards, and 3) suspicions of the foundation transferring staking rewards to exchanges. Although the SUI Foundation has provided clarifications for all three concerns, the community continues to raise questions regarding these explanations.

  • Inadequate disclosure of circulating supply
    • The SUI Foundation did not officially disclose its circulating supply plan until suspicions of SUI token dumping arose.
    • Following the allegations, the foundation officially published its circulating supply plan through a blog post.
  • Staking of locked-up tokens and circulation of staking rewards
    • Allegations were made that the foundation staked locked-up SUI tokens, exceeding the stipulated circulation plan.
    • The foundation clarified that all staking rewards for SUI tokens are carried out within the outlined circulation plan.
    • However, negative opinions persist regarding the staking of locked-up tokens.
  • Suspicions of the foundation transferring staking rewards to exchanges
    • Allegations were raised that the foundation is sending staking rewards to exchanges for sale.
    • The foundation clarified that while staking rewards were indeed transferred to exchanges, it was done to 1) address the MovEx team's contract violation tokens and 2) support the Education Grant Program.

*For a detailed analysis of suspicions and explanations related to SUI token dumping, please refer to Appendix 1.


2-2. ENJIN: Substantial shifts in circulating supply due to mainnet launch

On September 26, 2023, UPbit, South Korea's largest crypto asset exchange, made the decision to delist ENJ tokens issued by Enjin Coin from the Korean won (KRW) market and chose to facilitate trading exclusively on the BTC market. Considering that the average daily trading volume in the first half of 2023 in the KRW market was approximately KRW 2.9 trillion, significantly surpassing the approximately KRW 1 billion in the BTC market, Upbit found it problematic to sustain ENJ Coin trading in the KRW market. Upbit provided four reasons for the delisting, highlighting significant changes in circulating supply due to the mainnet launch. The analysis of the debate surrounding the substantial change in the circulating supply of ENJ tokens is outlined below:

Significant changes in circulating supply due to mainnet launch:

  • Enjin Coin integrated the existing ENJ token and the EFI token they had issued, introducing a new ENJ token on the Enjin Blockchain.
  • The existing ENJ tokens underwent a token swap at a 1:1 ratio, and EFI tokens underwent a swap at a 4:1 ratio, resulting in the issuance of 1.5 billion ENJ tokens.
  • An additional 250 million ENJ tokens were issued, incorporating initial migration support and other incentives, introducing an inflationary structure, with a total of 17.5 billion + α ENJ tokens.

*For an in-depth analysis of the significant changes in the circulating supply of ENJ tokens, please refer to Appendix 2.


2-3. WEMIX: Delisted as distribution of WEMIX exceeds distribution plan

In 2022, WEMADE’s WEMIX token navigated a challenging year. On October 17, 2022, concerns emerged within the community regarding the liquidity of the WEMIX token. In response, WEMIX officially asserted that they had not participated in the liquidity adjustments of the WEMIX token and provided detailed explanations. Nevertheless, on October 27, DAXA flagged the WEMIX token as a cautionary trading asset. The WEMIX team underwent a clarification process for about four weeks. However, on November 24, DAXA made the decision to delist the WEMIX token, attributing it to inaccuracies between the distribution plan and actual circulating supply. The timeline of concerns related to the WEMIX circulating supply is as follows.