Time to stop trading on Huobi? Justin Sun Probe Raises Concern

TRON’s native token, TRX, which is targeted by SEC charges, holds a significant portion of Huobi’s reserves, raising concerns over the crypto exchange’s financial stability and Justin Sun.

Recent fraud allegations against digital asset mogul Justin Sun and his TRX token have cast a shadow over the Huobi global crypto exchange. According to DeFiLlama data, TRX, also known as TRON, accounts for 18.66% of Huobi’s reserves.

With the US Securities and Exchange Commission (SEC) accusing Sun of market manipulation and violating securities regulations, doubts about the legitimacy of TRX could jeopardize the stability of Huobi’s financial position.

The SEC Goes After Justin Sun

The SEC alleges that Justin Sun manipulated the market by actively trading TRX. As a result, this resulted in a drop of 17.60% in the value of the TRON token. Sun dismissed the allegations and claimed that the SEC’s complaint was without merit.

This has helped TRX price to partially recover from the significant drop following the SEC announcement.

TRON TRX price chart
TRON (TRX) price chart. Source: TradingView

However, the uncertainty surrounding the future of TRX following the collapse of the FTX exchange has raised concerns about Huobi’s strength in the digital asset space.

Huobi’s reserves also include a significant portion of its native token, HT. Combined, TRX and HT make up 41.89% of the crypto exchange’s reserves.

Huobi Crypto Reserve
Huobi Crypto Reserve. Source: Defilama

The recent explosion of the native token of FTT, FTX, has crypto markets increasingly wary of native tokens, as their collapse could severely impact exchanges. Despite assurances from crypto exchanges that they maintain sufficient assets to return investor deposits, calls for a full audit persist.

Adam Cochran, Partner, CinemaHan Ventures Argument That recent developments could explain why Sun Yuchen was selling some of its “tokens and is probably going to push the asset back into cash.”

Huobi may be compromised

According to CryptoQuant data, Huobi has a total reserve of $3.1 billion. Excluding Native Tokens, this figure drops to approximately $1.8 billion. This is the lowest clean-reserve ratio among the eight exchanges that are listed digital asset data providers.

CryptoQuant warns of potential liquidity risks if a self-issued token represents a significant percentage of an exchange’s total reserves.

Huobi Reserve
Huobi Reserve. Source: Cryptoquant

Huobi has responded to concerns about the concentration of HT and TRX in its repository. The crypto exchange said that it maintains a strong and healthy reserve pool to address potential risks.

Earlier this year, Sun injected $100 million worth of stablecoins into Huobi twice to bolster its financial cushion. The most recent transfer occurred in March, countering concerns arising from the flash crash at HT. Meanwhile, this comes after Huobi experienced a wave of withdrawals last January.

The exchange claims that a combined $200 million came from Justin Sun’s personal funds.

In 2022, Sun reportedly spent $1 billion to acquire a 60% stake in Huobi. However, he has denied owning a majority stake, insisting that he only acts as an advisor.

Huobi recorded $11 billion in monthly trading volume in February 2023, according to CryptoData, despite retreating from its position as a global leader among crypto exchanges.


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