August 9, 2023 · 5 min read
Huobi's Uncertain Path
The cryptocurrency ecosystem is facing a new wave of scepticism as suspicions about Huobi, a major crypto exchange, deepen. The industry is grappling with worries about the exchange's financial soundness in the face of reports of insolvency and instability in stablecoin reserves.
Huobi's insolvency rumours have been circulating since August 4, 2023. A lot of factors fueled the rumours, including:
The exchange's Total Value Locked (TVL) fell dramatically, from $3.09 billion to $2.5 billion.
Huobi saw a $64 million outflow over the weekend of August 5-6.
According to reports, Huobi's executives were arrested in China as part of an inquiry into the exchange's links with gambling platforms.
Huobi has denied all of the rumours, but they have continued to persist. On August 6, 2023, crypto analyst Adam Cochran tweeted that he had seen evidence that Huobi's Tether holdings were inconsistent, which could be a sign of insolvency. Cochran also said that he had heard from sources that Huobi was facing liquidity problems.
Adam Cochran's Analysis
Crypto analyst Adam Cochran contributed to the discourse by delving into Huobi's situation. Cochran outlined a series of alarming revelations, suggesting that Huobi may be facing liquidity challenges and insolvency risks. Cochran highlighted significant disparities between the reported figures and the actual allocations of USDT and USDC assets. He pointed out that Huobi's own "Merkle Tree Audit" listed user balances at $631 million, while on-chain data hinted at a mere $90 million in actual assets, with the rest potentially being deployed elsewhere.
USDT Peg Deviation Sparks Controversy
Cochran noted that despite banks opening in different regions, the USDT peg remains off by a significant margin, which is the most sustained deviation since the FTX fallout. He highlighted that USDT constitutes a significant portion of Curve 3Pool and has a substantial presence in Uniswap pools.
Cochran also pointed out selling pressure originating from Binance-funded accounts, suggesting the possibility of orchestrated selling. He referenced addresses that were pulling USDT from exchanges like Huobi and Kraken to conduct large-scale dumps.
In response, Paolo Ardoino of Tether labeled these actions as "attacks" on Tether by counterparties. Coincidentally, Binance CEO Changpeng Zhao (CZ) expressed skepticism about Tether, calling it a "blackbox" and indicating a shift towards alternative stablecoins like TUSD and FDUSD.
Justin Sun's Response and Ongoing Speculation
In the midst of all these claims and accusations, Justin Sun stepped into the scene, making it clear that he had a direct conversation with Huobi's CEO, Leon Li. Sun wanted to reassure everyone that the exchange's financial health was intact. In a surprising twist, Sun also talked about how bots were messing with the numbers showing Huobi's Total Value Locked (TVL), which is basically the amount of cryptocurrency locked in their platform.
This incident brought to light a bigger challenge that the cryptocurrency world is facing – the struggle to keep things transparent and accurate when it comes to reporting. However, even with Sun's insights, Adam Cochran's persistent statements, and the unfolding story of Huobi's supposed financial involvements, the air of uncertainty hasn't completely dissipated.
Cochran is pretty firm in his claims. He's saying that there's a significant gap between the numbers that were reported and the actual reality of the situation. This, of course, makes you start questioning the accuracy of the data that's being thrown around. What's more, Cochran is even suggesting that Justin Sun might have taken advantage of these inconsistencies to give his DeFi projects a boost. It's even alleged that he might have converted Ethereum holdings into stETH without bothering to get the green light from users.
Justin Sun's $200 Million USDT Withdrawal
On 08 August, Adam Cochran stirred the pot once again by making fresh allegations involving Justin Sun. He's basically suggesting that there was some sort of intricate maneuvering going on with USDT funds. According to Cochran, Sun supposedly pulled a whopping $200 million in USDT from JustLend, which has its origins in Huobi, and then swiftly shifted it to a new address. It seems like this move was triggered by increasing pressure or scrutiny.
What's really intriguing is that this new address has a history of back-and-forth transfers with Huobi. This raises the suspicion that Sun might have withdrawn the funds from Huobi's hot wallet, used them for whatever reason, and then decided to put them back in to show that everything's all good—kind of like a strategic move reminiscent of the "Alameda trick."
Huobi's response to recent concerns raises scepticism. While the exchange claims progress since the withdrawal of Mainland Chinese users, it's essential to scrutinise their assertion of improvement. The recurring pattern of scepticism and negativity within the industry surrounding Huobi is acknowledged, yet the exchange presents itself as resilient. Despite facing doubts, Huobi insists its operations are normal, focusing on ongoing initiatives such as the 7th round of Primevote.
As the crypto community remains vigilant, these events underscore the ongoing need for accountability and transparency in the world of digital currencies. They serve as a reminder that without a commitment to transparency and trust, even the most prominent players can face scepticism and uncertainty, potentially undermining the progress and widespread adoption of digital assets. Therefore, fostering an environment of openness and accountability is not just a matter of best practice—it is an essential prerequisite for the industry's long-term success and credibility.