Why You Should Be Careful with Huobi Exchange: The Proof-of-Reserves Issue

Huobi may be past its prime now, but it was once one of the top three overseas exchanges. About KRW 4.5 trillion in assets is currently deposited on the exchange. However, there are some problems with the reserves it holds.

Huobi Exchange's Proof-of-Reserves Problem

After the collapse of FTX, exchanges joined the proof-of-reserves movement. Proof of reserves means using blockchain wallets to prove that an exchange actually holds the funds its customers have deposited. Anyone who knows the addresses can check the exact amounts, which is why it can be trusted. On NANSEN, you can see exchanges' reserves and their composition.

Huobi also published its proof of reserves, but it became a talking point because most of the tokens it holds are Huobi Token (HT) and TRON (TRX). Close to 50% of its funds were held this way.

Why You Should Be Careful with Huobi Exchange

Because of this, I think you should be careful about using Huobi going forward. Here is why the issue above is a problem, and how things could play out:

1. Customers withdraw their funds en masse.
2. Huobi has to sell HT and TRX to process the withdrawals.
3. The value of those assets could plunge like LUNA did, delaying withdrawals.
4. In the worst case, the exchange could go bankrupt like FTX.

Can Justin Sun Save Huobi?

Most of you probably know Justin Sun. He's the founder of TRON, and he's so fond of running his mouth on Twitter that he's sometimes called "Big-Mouth Sun." Justin recently acquired Huobi exchange.

When Huobi got caught up in the controversy, Justin Sun tagged the big boss, Binance's Changpeng Zhao, and said, "Let's ignore the FUD and focus on the ecosystem." Then, keeping a firm grip on the situation, he transferred a large amount of USDT to Huobi to try to head off panic in the market.

Fortunately, Bitcoin rebounded for several days and the Huobi issue got somewhat buried. Even so, if you're still using Huobi, I think you should be careful.