Key Points
- Cryptocurrency exchange Huobi has reportedly laid off about 20% of its workforce and asked employees to accept their salaries in stablecoins.
- Internal communications were allegedly suspended to suppress dissent among staff.
- Customers are withdrawing funds from the exchange, and trading volume has fallen by roughly 23%.
- Huobi’s native token has dropped about 10%. Earlier reports highlighted that Huobi relies heavily on its native token when describing its reserves.
- Although there is no concrete evidence that customer reserves have been compromised, investors would be prudent to withdraw funds until the situation stabilizes, given the turmoil the crypto industry experienced in the past year.
It feels like Groundhog Day in the crypto world. Another centralized cryptocurrency exchange appears to be in trouble — this time it’s Huobi.
What’s Going On at Huobi?
Chinese crypto entrepreneur Justin Sun, founder of Tron and a member of Huobi’s board, announced that the exchange would cut roughly 20% of its staff.
Further reports claim that, alongside substantial layoffs, employees were asked to take their salaries in stablecoins, and that internal communication channels were shut down to stifle unrest.
As this story develops, it’s clearly concerning. Numerous screenshots purportedly showing employees attempting to access systems and communicate privately circulated widely on social media. Reports also emerged that some staff were angered and told they might be dismissed if they refused to accept payment in stablecoins.
Justin Sun’s HR is communicating with all Huobi employees to change the salary form from fiat currency to USDT/USDC; employees who cannot accept it may be dismissed. The move sparked protests from some employees. Exclusive https://t.co/QB4sjDyHc7
— Wu Blockchain (@WuBlockchain) January 4, 2023
Funds Are Leaving Huobi Quickly
The market’s reaction was swift. While there is no confirmed evidence that Huobi’s reserves or solvency are impaired, investors remain on edge after a difficult year for crypto — the collapse of FTX and the fallout around Sam Bankman-Fried are still fresh in many minds.
Consequently, funds have rapidly flowed out of Huobi. Data from DefiLlama show increasing USD outflows. Since December 15, when USD inflows of $87.9 million were recorded, outflows have exceeded $200 million, with $75.1 million of those outflows occurring in the past 24 hours.
In the same 24-hour window, the exchange’s trading volume dropped by about 23%, from $510 million to $295 million.
Huobi’s exchange token is also suffering. Crypto investors have become especially sensitive to native exchange tokens after FTT’s role in FTX’s collapse, and many such tokens have shown limited intrinsic utility.
Huobi Token has lost half its value since late October and fell more than 10% in the 24 hours after reports of the layoffs emerged.
Is It Safe to Keep Assets on Huobi?
The layoffs, staff unrest and volume declines are troubling, but they do not necessarily mean Huobi’s custodial assets are at risk. In theory, these events should not affect the security of customer funds. In practice, however, crypto has repeatedly shown that appearances can be misleading.
As I have written before, transparency among centralized crypto firms is often poor. There is no reliable way to know with certainty what is happening behind the scenes at these companies.
The presence of an exchange-native token further muddies the waters. Is that token being used as collateral for liabilities? There is no evidence proving that it is, but there is also no evidence proving that it isn’t.
Blockchain analytics from Nansen indicate that Huobi’s native token comprises about 32% of some reported reserve allocations, while Justin Sun’s TRX token accounts for another 17%. CryptoQuant also reported that, compared with other exchanges, Huobi appears to rely most heavily on its own token when describing reserves.
Though there are no direct signs of wrongdoing, reliance on a native token to bolster reserve figures certainly complicates the picture.
Withdrawing Funds Is a Reasonable Choice
Given the uncertainty surrounding the platform and the broader industry turmoil over the past year, it makes sense for customers to withdraw their funds. After major shocks such as FTX’s collapse, large amounts of funds were pulled off exchanges as users prioritized risk management — and similar caution today is reasonable.
If Huobi is fully solvent and operations return to normal — and there’s no concrete evidence currently showing otherwise — customers can always re-deposit funds later. But Huobi remains an opaque, largely unregulated entity for which independent financial assessment is difficult or impossible. That inherent risk, combined with the recent upheaval, means it is a prudent risk-management step to temporarily withdraw assets and wait until the situation becomes clearer.