Huobi Insolvency Fears Surge: Crypto Storm Ahead?

In a recent series of tweets, Adam Cochran, a well-known analyst in the crypto community and angel investor, has raised serious concerns about the solvency of Huobi, the world’s 12th largest crypto exchange by spot volume. This comes in the wake of reports that several executives from Huobi and Tron have been taken into custody by Chinese authorities for investigation.

Cochran’s claims are based on a detailed analysis of Huobi’s balance sheets and the recent activities of Justin Sun, the founder of Tron. He alleges that Sun has been using the exchange as a personal piggy bank, diverting funds to his other DeFi projects, and leaving the exchange with insufficient assets to meet its obligations.

“So users think they have balances of $631M in Huobi, but there is only $90M there. The rest Justin Sun is using to prop up his other defi apps, and paying a yield on it to get users to deposit more,” Cochran tweeted.

Huobi’s Crypto Balance Sheets Under Scrutiny

Cochran pointed out that the exchange’s own “Merkle Tree Audit” still lists that Huobi users have $630M of USDT held and a wallet balance of $631M USDT, despite the fact that the exchange only holds $90M of assets. This discrepancy, he suggests, is a clear sign of insolvency.

Adding to the complexity of the situation, Cochran noted a significant sell-off of Tether (USDT) on Binance, which he believes is connected to the insolvency fears surrounding Huobi. He also raised concerns about Sun’s recently launched “stUSDT”, a variant of USDT that Sun claims is backed by government bonds. Cochran alleges that the stUSDT does not have sufficient backing, further exacerbating the potential risk.

“If stUSDT was real, we’d expect then $500M of redemptions from Huobi addresses on Tron, into redeemed Tether so they can buy bonds for yield. But no such redemptions exist. The mint proxy sends to the main address: Which in turn sends it to other addresses which are all either Sun, Huobi or Sun’s Binance address,” claims Cochran.

In response, Xandi, a community manager from Huobi, denied any wrongdoing and insisted that all operations are normal. However, Cochran countered this by stating that his source, a senior executive at Tron, confirmed that team members were indeed under investigation due to actions related to Huobi.

“The source has been verified as a senior executive at Tron who has first hand knowledge of the investigation and has been at Tron for many years. Whether you’ve been informed or not, your colleagues are currently under criminal investigation,” Cochran responded.

The recent arrests of Huobi, TUSD and Tron executives, as reported by Chinese local media Techub News, have added fuel to the fire. The individuals allegedly apprehended include key personnel from both organizations, and the news has reportedly led to some employees receiving urgent notices advising them to leave the country immediately.

The individuals allegedly include Wan Ming, Tron’s head of product; Rain Ren, Tron’s head of chain tech; Fai Wang, head of HR at Huobi; Wang Huanye, the head of server operations at Huobi, and Zhang Da, the DevOps lead.

Cochran further added, “Huobi’s current total balance is $2.5B of which $662M is Tron, $500M is HT, $884M is BTC (which is supposed to also cover the $3B in BTC issued on Tron), $168M is HBTC. This leaves $286M in other assets. So even all the other liquid assets on the exchange in total, are less than 1/3rd of the reported amount of USDT obligations.”

Justin Sun responded on Twitter:

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!

At the time of publication, the price of the HT token remained flat, having already fallen massively over the past few weeks.

Featured image from iStock, chart from TradingView.com