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Crypto exchange Huobi is laying off 20% of its workforce and has requested that employees receive their wages in stablecoins Internal communication has reportedly been suspended to quell discontent Customers are withdrawing their funds from the exchange, while volume is down 23% Its token native dropped 10%. Reports have already named Huobi as the exchange most reliant on its native token to denominate its reserves. While there is no concrete evidence that anything untoward happens to customer reserves, investors should withdraw funds until the dust settles, considering what more happened in the cryptocurrency industry last year. There is a loop of events in cryptography. Another centralized crypto exchange catches fire, this time Huobi.
What’s going on with Huobi?
Chinese cryptocurrency entrepreneur Justin Sun, who is the founder of cryptocurrency Tron and also sits on the board of Huobi, announced that the exchange was expected to lay off around 20% of its workforce. Other reports claimed that, in addition to a dramatic reduction in the workforce, employees were required to receive their wages in stablecoins, while internal communication channels were closed to quell discontent. While the story is still emerging, this is obviously not a good thing. Many ominous screenshots of employees trying to get into systems and communicate with each other were being shared across Twitter. Reports emerged, understandably, that employees were furious that if they refused to accept their wages in stablecoins, they would be fired.
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 leave Huobi quickly
The market did not wait to react. While there is no confirmed evidence of anything wrong with Huobi’s reserves or solvency, it has been a difficult year for cryptocurrency investors with the demise of FTX and Sam Bankman-Fried still very recent. As a result, funds were quickly withdrawn from Huobi. The chart below DefiLlama shows USD outflows increasing. Since December 15, when it received US$87.9 million in inflows, there have been more than US$200 million in outflows. $75.1 million of those exits were in the last 24 hours.
Over the past 24 hours, volume on the exchange has also dropped 23% to $295 million from $510 million. Huobi’s token is also feeling the pain. Crypto investors will be particularly sensitive to these native tokens, given FTT’s role in the FTX collapse and the fact that it has become increasingly obvious that so many simply serve a minimal purpose. The Huobi token has halved since the end of October. It has dropped more than 10% in the last 24 hours since the story of Huobi’s layoffs broke.
Is Huobi Safe to Keep Assets?
While the drama about layoffs, employee discontent and declines in volume is concerning, it should not affect Huobi’s safety. At least, in theory, he shouldn’t. But this is crypto, and if this year has taught us anything, it’s that things are often not what they seem. As I’ve written repeatedly, transparency is abhorrent when it comes to these centralized crypto players. There’s simply no way to know for sure what’s going on behind the scenes at any of them. The presence of an exchange token also muddies the water. Is this token being accepted as collateral for liabilities? Again, there’s no evidence to suggest it is, but there’s also no evidence to suggest it isn’t. Looking at data from blockchain analytics platform Nansen, Huobi’s native token makes up 32% of its total allocation, while Justin Sun’s TRX token comprises an additional 17%. A CryptoQuant report also shows that, of all exchanges, Huobi relies most on its own token to denominate its reserves. Again, while there’s no evidence to suggest anything untoward is going on here, the influence of a native token definitely muddies the water.
Customers do the right thing when withdrawing funds
With doubt on the platform and the recent chaos in the cryptocurrency industry over the past year, it makes perfect sense that customers are withdrawing their funds. Similar to how a large chunk of funds were withdrawn from exchanges after the FTX collapse, this is simply good risk management. If Huobi is perfectly safe and everything is back to normal – and again, there’s nothing concrete to suggest it isn’t – then customers can simply deposit their funds back into the platform. But this is an unregulated and opaque entity, impossible to make any kind of financial assessment. That means it’s a risk, and with all the craziness of the last 24 hours, it would be a questionable move from a risk management perspective not to withdraw funds at least temporarily and wait until the dust settles.
