Is Huobi Exchange Insolvent? TVL Crashes to $2.5B as Chinese Authorities Start Investigation

Cryptocurrency exchange Huobi is currently facing challenges and concerns over its financial stability, leading to a significant outflow of funds and sparking rumors about its operations. The exchange has been in the spotlight recently due to ongoing speculations about its reserves and an alleged investigation by Chinese authorities. 

Huobi Insolvency Charges? Is Tether Sell Off a Hint?

The recent breakthrough came in the span of just two days, from August 5 to August 6, Huobi experienced a total outflow of $64 million. The abrupt transfer of funds has resulted in a decline in the exchange’s total value locked (TVL), which dropped from $3.09 billion on July 6 to $2.5 billion at present. 

Over the top, there are clouds of rumors regarding the arrest of Huobi’s leadership in China surfaced on August 4. However, all these rumors were linked to an alleged investigation into the exchange’s involvement with gambling platforms.

However, a Huobi spokesperson has dismissed these claims as false, stating that the exchange is operating smoothly. These rumors come at a time when Chinese authorities are reportedly increasing their scrutiny of cryptocurrency exchanges within the country.

With the effect of the rumors there are internal changes in Huobi as well. Some key executives, including at least one C-level executive, have reportedly left the company in recent weeks. It remains uncertain whether these departures are linked to the ongoing investigations. But on Platform X, Huobi officials denied these rumors and claimed the company is doing well. 

Analyst: Binance Sold Bulk USDT Amid Huobi Insolvency Rumors

However, Huobi’s Tether (USDT) holdings concern fintech executive and investor Adam Cochran. Huobi’s USDT holdings are inconsistent, according to Cochran, suggesting the exchange may not have as much as it claims. Huobi’s “Merkle Tree Audit” reveals that on August 5, Huobi had less than $90 million in USDT and USD Coin (USDC) assets, despite though consumers think they control $631 million. 

He also suspects Tron network founder Justin Sun. Cochran claims that Sun may have used Huobi customers’ funds to fund his own decentralized finance (DeFi) projects, jeopardizing Huobi’s finances. He also said Sun turned half of Huobi users’ 141,000 ETH into stETH.

The analyst also suggests that Binance may be selling Tether to weaken Huobi. Binance may promote additional stablecoins it controls and profits from. Cochran thinks Binance may be aware of possible concerns with Huobi’s Tether holdings and wants to shield itself against a Huobi user sell-off.

These issues and Malaysian securities regulators’ enforcement action that forced Huobi to close its Malaysian operations earlier this year have prompted concerns about Huobi’s financial health and solvency.