December 2, 2023

SEC strikes ‘Crypto Tycoon’ and puts another exchange at risk of bankruptcy, experts fear

after ftx

Huobi, once one of the largest digital asset exchanges in the world, has reserves made up mostly of tokens tied to an alleged console.


Cryptocurrency entrepreneur Justin Sun (Calvin Sitt/Bloomberg)

The TRX token, which is at the center of fraud allegations against digital asset mogul Justin Sun, represents a large slice of the reserves of cryptocurrency exchange Huobi Global, for which the Chinese entrepreneur serves as an advisor.

TRX — commonly referred to as Tron — accounts for 18% of bookings on Huobi, a leading crypto platform, according to data aggregator DeFiLlama. Experts fear that currency skepticism could reignite concerns about Huobi’s strength in an industry devastated by the November FTX crash.

The cryptocurrency fell nearly 16% on Wednesday (22nd) after the US Securities and Exchange Commission (SEC) accused Sun and its companies of market manipulation with the purpose of simulating token trades. The SEC also sued Sun for allegedly violating securities laws. The 32-year-old denied the allegations, saying via Twitter that the SEC’s charge was “baseless.”

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Another large part of Huobi’s reserves is in the exchange’s own currency, HT. TRX and HT together account for about 41% of the platform’s bookings. Cryptocurrency markets are becoming increasingly wary of native tokens after the implosion of FTX’s FTT token contributed to the exchange’s demise.

Cryptocurrency exchanges have tried to ensure they have enough assets to back up investors’ deposits, but they are facing fees for full audits.

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“Offshore, stable and uncorrelated assets, whose success is independent of the exchange, serve as a better form of collateral,” said Kunal Goel, Research Analyst at Mesari.

Huobi’s reserves total $3.1 billion, according to CryptoQuant. Excluding native tokens, the number drops to around $1.8 billion — a metric CryptoQuant calls clean reserves. Huobi’s clean booking rate is the lowest among the eight exchanges listed by the digital asset data provider.

“There could be a risk to the exchange’s liquidity if the self-issued token holds a large percentage of the total value of reserves,” says CryptoQuant.

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When asked about the focus of HT and TRX in its asset pool, Huobi said it has Swimming pool Of strong and healthy reserves to deal with any dangers.

Coin injection

This year, Sun twice injected $100 million worth of stablecoins — a type of token that is supposed to maintain a fixed value of $1 — into Huobi to increase its financial protection.

His last transfer was in early March when he tried to allay fears raised by his sudden HT drop. The previous leak was in January after Huobi suffered a wave of withdrawals. The company said that a total of $200 million in stablecoins came from Sun’s personal funds.

Last year, the businessman spent about 1 billion US dollars to buy a stake of about 60% in Huobi, it was reported bloomberg In November. He denied having a majority stake and says he is just an “adviser” to the stock exchange.

Huobi, a platform with Chinese roots, has fallen behind the global leadership of cryptocurrency exchanges but still reached $11 billion in monthly trading volume in February this year, according to data from CryptoCompare.

On Thursday (23rd), TRX recovered part of its decline from the previous day, rising around 5% in the early hours of the morning. HT is down nearly 9% in the last 24 hours, according to CoinGecko.