Sui, a decentralized layer-1 blockchain developed by former Meta employees, is facing a criminal probe by the South Korean Financial Supervisory Service (FSS) for allegedly manipulating the supply volume of its native SUI token and selling community members’ staking rewards on Binance to issue new tokens.
On Tuesday, during the Government Affairs Committee audit, Representative Min Byeong-deok of the Democratic Party of Korea questioned FSS chairman Lee Bok-hyun, and the Joint Council of the Digital Asset Exchanges (DAXA) for not taking action against Sui Coin, despite having clear evidence suggesting that its issuers deceived stakeholders about the token’s circulating supply and purported profits derived from staking activities.
DAXA, which consists of the five major crypto exchanges, is responsible for overseeing crypto projects that are operating in South Korea and has proper guidelines in place to take action against such violations.
Korean Lawmaker Criticizes Financial Regulators For Not Taking Action Against Sui Coin
Byeong-deok said the token’s issuer, Sui Foundation, took advantage of the locked-up SUI holdings through staking and accrued the profits while simultaneously selling the tokens to inflate SUI’s circulation volume.
The lawmaker noted that SUI has lost over 67% of its value in the five months since its listing. He claimed the decline could be attributed to the Sui Foundation providing false information regarding the token’s circulating volume, which directly affected its market capitalization and ranking.
In June, decentralized finance (DeFi) research group DefiSquared claimed that the Sui Foundation had “intentionally misrepresented emissions” and dumped a massive number of tokens belonging to locked and non-circulating staked SUI accounts on Binance. However, the company lashed out at the allegations by denying any wrongdoing.
According to stats by token.unlocks, $336 million worth of SUI have been unlocked since the cryptocurrency was first issued. Out of these, SUI worth $72 million has been allocated to stake subsidies, $129 million of the tokens has gone towards the community reserve, and SUI equivalent of $139 million has been distributed to the community access program.
Furthermore, Series A and Series B investors of the project are expected to gain access to approximately $290 million worth of tokens that are scheduled to be unlocked in May 2024.
FSS Director Says The Agency Will Take Action Against Sui Foundation If Evidence Is Found
Responding to Representative Min’s accusations, FSS director Lee Bok-Hyun acknowledged that there in fact was a manipulation of Sui Coin’s distribution volume through staking and the Sui Foundation failed to adequately disclose its practices. Hyun said he is working with relevant authorities to regain consumer confidence and will investigate the case and take enforcement action against SUI coin and its issuers if there is any evidence suggesting manipulation or fraud.
Chinese crypto journalist “Wu Blockchain” reported that Sui community members had earlier raised concerns after the team started dumping SUI staking rewards on Binance. They also questioned the SUI team for not releasing a true distribution chart and unlocking schedule for the tokens. The Foundation responded to them by stating that it had not sold staking rewards or any other tokens from locked and non-circulating staked SUI on the exchange.
Meanwhile, in an X post, DefiSquared said that the Sui Foundation’s response was “somewhat ambiguous” as they claimed to have used the stake-locked tokens to make payments to a third party. He pointed out that if the issuer wasn’t the one selling the tokens, it had to be someone else because despite having a “contractual lockup” period, the staked SUI tokens in question were found on Binance within a week.
Sui Foundation Continues To Deny The Allegations
A spokesperson for the Sui Foundation explained that the allegations made against it were “unfounded” and “materially false”. The crypto project continues to defend itself by claiming that there has never been any sale of SUI tokens after the initial Community Access Program distributions. The Foundation added that it “remains committed” to cooperating with DAXA and its member exchanges for compliance and transparency.
Despite the allegations and on-chain proof, the SUI team continues to defend its actions by claiming that the circulating supply schedule displayed on the Sui Foundation website and available through its “public API endpoints” is true.
At the time of writing, SUI is trading at $0.378 – down almost 5% from its previous day’s price. The token has declined by 8.2% in the past seven days.