Crypto giant Huobi grapples with arrest and insolvency rumours

Huobi Global, a cryptocurrency exchange founded in mainland China with a large presence in Hong Kong, is grappling with a torrent of rumours surrounding alleged arrests of employees, insolvency and fraud that triggered a roller-coaster ride in the crypto market over the past week.

The drama began on Saturday when blockchain news website Wu Shuo reported that several crypto exchange executives had been investigated by mainland police. Soon after, Hong Kong-based Techhub News reported that at least three executives from Huobi had been taken away by mainland police as part of an investigation, with other employees asked to leave the country. The report cited unnamed sources.

Huobi denied the allegations in an email to the Post. A spokeswoman said the company had asked those websites to remove and correct “misinformation”, adding that it reserved the right to take legal action.

The allegations come as Huobi is set to face scrutiny from regulators in Hong Kong, where it plans to apply for a virtual asset trading licence under the city’s new crypto regime.

Hong Kong’s financial regulator on June 1 launched a new virtual asset trading provider (VATP) licensing regime, giving crypto exchanges a one-year window to apply for a licence, or to leave the market. The licensing requirements cover a broad range of areas including user onboarding, asset custody, cybersecurity and corporate governance.

A Huobi official on Monday said the exchange still intends to apply for a VAT licence, but has yet to submit an application form. The exchange had previously begun onboarding retail traders on its newly launched Hong Kong trading app.

Investors had also been spooked earlier this week by allegations of financial instability at Huobi. On Sunday, Adam Cochran – a fintech executive, angel investor and prominent crypto analyst – levelled a series of social media attacks against Huobi.

Specifically, he pointed to potential insolvency tied to Huobi’s reserves of Tether, a US-dollar-pegged stablecoin also known as USDT.

Justin Sun, founder of the Tron crypto network and a Huobi adviser, recently launched a USDT product called stUSDT on Tron that purportedly allowed investors to “stake” their USDT, with the stablecoins then invested in government bonds.

But Cochran alleged that a significant portion of the staked USDT was instead recycled into decentralised finance protocols and wallets linked to Sun, citing large discrepancies in a third-party estimation of Tron’s USDT balance and the exchange’s previous self-reported numbers.

Cochran added that the vast majority of the staked USDT product in circulation was directly held by addresses related to either Sun or Huobi. Blockchain news site Protis published an article that came to a similar conclusion earlier.

Huobi on Monday said its platform was “operating as usual”, dismissing allegations of insolvency as “the spreading of [fear, uncertainty and doubt]”. That message failed to reverse an outflow of funds across the Ethereum, Avalanche, BNB Chain, Fantom and Polygon network blockchains, which totalled US$113 million over the seven days leading up to Tuesday, according to analysis firm Nansen.

However, investor sentiment appeared to have improved after Huobi received a single injection of US$209 million worth of USDT and the USDC stablecoin on Tuesday from a crypto wallet that some industry players linked to Sun.

The total asset value locked in Huobi rose to US$3.2 billion as of Thursday, compared to US$2.5 billion on Tuesday and US$3 billion a month ago, according to data provider DefiLlama.

Huobi said they had reached out earlier this week to DefiLlama regarding issues with its data. DefiLlama on Tuesday added stUSDT to Huobi’s list of tokens, showing that the exchange had about US$400 million in stUSDT.

DefiLlama did not immediately respond to a request for comment by the Post.