Crypto Exchange Huobi Faces Massive Outflows Amid Rumors of Insolvency, Justin Sun Rejects FUD
Last weekend between August 5-6, crypto exchange Huobi recorded massive outflows to the tune of $64 million amid news that Chinese authorities have been investigating their executives and the rumors of insolvency.
As a result of these massive outflows, the exchange’s total value locked (TVL) dropped to $2.5 billion, from $3.06 billion a month before on July 6. Last week on August, the rumors of the exchange’s leadership arrested in China surfaced for the first time amid an investigation over Huobi’s dealings with gambling platforms.
Also, there are reports that a few C-level executives have left the exchange over the past few weeks and it’s unclear whether these departures are due the investigations by Chinese authorities.
Analyst Adam Cochran has raised speculation about the financial stability of cryptocurrency exchange Huobi, suggesting that the firm might be insolvent due to disparities in its Tether (USDT) holdings.
Cochran examined Huobi's "Merkle Tree Audit" and found that they hold only $90 million, while the exchange's users believe they own $631 million worth of USDT. The discrepancy is concerning as the Merkle Tree Audit stopped updating last month.
According to Cochran, the shortfall in Huobi's USDT assets may be linked to actions taken by Justin Sun, a prominent figure in the cryptocurrency world and founder of the Tron network. Sun is accused of using Huobi users' assets to support his decentralized finance (DeFi) applications, thereby inflating the yield to attract more deposits into Huobi.
Cochran further alleged that Sun converted the user ETH balances into stETH. Half of the total 141,000 ETH believed to be held by Huobi users are actually present in Sun’s account, he noted.
Additionally, he thinks that another cryptocurrency exchange, Binance, might be selling a large amount of Tether as a strategic move against Huobi. The analyst believes that Binance wants to reduce the dominance of USDT and promote other stablecoins that they can control and profit from.
Cochran also suggests that Binance could be aware of Sun's exaggerated USDT holdings and wants to protect itself from a potential mass sell-off by Huobi users. He points out that Huobi's financial obligations don't seem balanced, even after considering the funds that Sun supposedly transferred from Huobi to his DeFi apps.
Cochran accuses Sun of using Huobi like a "personal piggy bank." He believes that Binance's aggressive USDT sell-off might be a way to manage risks, as they have heard about an investigation into Huobi and Tron employees. These allegations raise concerns about Huobi's financial health and add to the rumors about the company's possible insolvency.
However, Justin Sun and his team have rejected all the FUD created due to these rumors. Huobi’s head of social media called the rumors untrue adding that the exchange is “currently doing well.”
Huobi chief Justin Sun also tweeted noting: “Ignore FUD, keep building! #TRON and #Huobi will thrive through continuous development. Trust in our vision and community efforts for a stronger future. Perseverance guarantees success!”