The broader crypto market went through a horrible phase in 2022. After the Terra implosion and the recent FTX collapse, many investors and traders have lost faith in the future of cryptocurrencies. The FTX meltdown also cast doubts on the capabilities of centralised exchanges (CEXs). Soon, other centralised trading platforms like Binance also came under the scanner, with whispers of financial instability at the world’s largest crypto exchange.
The latest centralised exchange to face the music is the Huobi Global exchange. The Seychelles-based trading platform has been dealing with several negative developments over the last few months, some of which are eerily similar to the events that transpired over at FTX a couple of months ago.
Could Huobi be the next FTX? Let’s find out.
Huobi exchange: A brief overview
Huobi is a digital asset exchange that allows users to buy and sell a variety of cryptocurrencies. Huobi was founded in China in 2013 but later moved its headquarters to Singapore after the Chinese government implemented a ban on cryptocurrency trading in 2017. Today, Huobi is based out of Seychelles and operates globally, with offices in several countries, including the United States, Japan, and South Korea.
The exchange supports a wide range of trading pairs, including Bitcoin, Ethereum, Litecoin, and many other cryptocurrencies. Users can trade these assets against both fiat currencies, such as the US dollar, and other digital assets. Huobi also offers a variety of trading tools and features, such as margin trading, spot trading, and a built-in price charting tool.
Huobi is treading on thin ice
Although Huobi has been a prominent name in the crypto world, the exchange has been navigating troubled waters lately. Over the last few months, speculations about possible insolvency have been circulating among Huobi users and the larger crypto community.
When FTX collapsed, major centralised crypto exchanges rushed to present something they called a “Proof-of-Reserves” (PoR) audit. This report aims to maintain transparency about how user funds are stored on exchanges. Binance along with many other exchanges started presenting their PoR to assure users that their funds were safe.
Huobi also presented its PoR on November 12, 2022, the day after FTX filed for bankruptcy. The report stated that Huobi had almost $3.11 billion in its reserve. However, the report also indicated that approximately 43 percent of their reserves were made of the Huobi Token (HT), which is issued by the exchange itself. This is worryingly similar to the situation that triggered the FTX collapse.
Back in November 2022, CoinDesk, a crypto-focused media house, published the balance sheet of Alameda Research, FTX’s sister concern. It showed that Alameda’s reserves were made up largely of FTT tokens, which are issued by FTX. Therefore, if anything were to happen to the exchange, causing its native token FTT to drop, it could lead to liquidity issues at Alameda.
These fears caused Binance to liquidate nearly $530 million worth of Bankman-Fried’s FTT token. The move triggered a massive sell-off as investors rushed to get out of their FTT positions, and that was the beginning of the end for FTX. Therefore, the cryptoverse was rife with speculation after Huobi’s PoR presented similar findings.
Employee layoffs and massive withdrawals
Ever since Dec 2022, there have been rumours of upcoming layoffs at Huobi. However, Justin Sun, a Huobi board member and the co-founder of the Tron Network, told users and staff that these reports were not true.
However, a month later, the company announced that they are about to lay off 20 percent of its workforce as the company wants to maintain a ‘lean team’. Moreover, Sun has reportedly changed the mode of paying salaries to the employees from fiat to USDT/USDC stablecoins.
On top of that, he even warned that employees who are not comfortable with the mode of payment may be laid off as well. Reportedly the company had even shut off all internal communications to suppress a possible insurrection within the company.
Users didn’t react well to the layoffs and began withdrawing their funds from the exchange. This panic selling resulted in $64 million flowing out of the exchange in less than 24 hours.
Furthermore, over the past few days, investors have withdrawn more than $140 million from the exchange. This is another scary similarity with FTX, which was forced to pause withdrawal after its user began offloading funds en masse, eventually leading to insolvency.
The Huobi token dips
The Huobi Token (HT) has seen a massive decline following all the rumours, the news of the job cuts, and the massive withdrawals from the exchange. The token has lost nearly half its value over the last couple of months, dropping from $9.40 at the end of October 2022, to $4.84 at the time of writing. HT is down 8.64 percent for the week and its trading volume has also fallen nearly 17 percent over the last 24 hours.
Huobi Korea looks to separate from its parent company
In another alarming development, the chairman of Huobi Korea, Cho Kook-bong, is looking to buy out the platform’s shares and separate them from the parent company. If and when that happens, Cho is also planning to change the company’s name. Currently, 72 percent of Huobi Korea’s shares are held by the co-founder of Huobi Global, Leon Li.
Conclusion
The crypto market is finally showing signs of revival after a disastrous 2022. However, if Huobi does follow in the footsteps of FTX, it could spell further losses and added pain for an already reeling industry.
For now, Justin Sun is taking measures to stabilise the situation. On Jan 7, he moved $100 million worth of stablecoins from his personal funds to Huobi in a bid to neutralise the effect of last week’s mass withdrawals. He is also working hard to quell the FUD around Huobi.
“At Huobi, our strategy is to Ignore FUD and Keep Building. By staying true to our mission, investing in technology and security, listening to our users, we're able to provide a trusted and reliable platform for our users to buy, sell, and trade cryptocurrency,” Sun said in a recent Twitter thread.
However, whether Sun can successfully navigate Huobi through these storm waters remains to be seen.
