The Breakdown - An Analyst Warns on TUSD, stUSDT, and Huobi/HTX

Episode Date: October 8, 2023

Respected analyst Dylan Leclair has recently put together a thread warning crypto market participants about some questions around TUSD, stUSDT and other assets surrounding Huobi/HTX. In the spirit of starting the next bull market cleaner than we left the last one, NLW presents the thread: https://twitter.com/DylanLeClair_/status/1709712204675555651 Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, October 8th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello, friends. Welcome back to the breakdown. As you might imagine, a huge portion of people's commentary and op-ed writing this week is about SBF in the trial, but man, we are doing a lot of

coverage around that, and I kind of get a chance to editorialize constantly about it. So I wanted to do something different, although it may be a little less unrelated than it might at first seem. Today's long read is going to come from Twitter. It's around a viral thread by analyst Dylan Leclair, which has some pretty serious allegations around Justin's son. and Huobi. Now, I am not presenting this as definitive. I'm not presenting this as smoking guns. I'm presenting this because I think it's imperative. In the world that we live in now, the post-SAM world, to be just a little bit more cautious, to pull on threads that seem strange, to explore and dive in and use the tools of on-chain analysis that we have available to us, to ask if the

leaders in the space are behaving the way that they're supposed to be behaving. I think, unfortunately, for exchange owners and for basically any other leaders in the space, they're just going to have to answer more questions now than they might have needed to in the past. I think that many of us have a sense that had we asked harder questions of people like Sam, we might not be in the situation that we're in now. I certainly feel that on a deeply personal level. So, like I said, the spirit that I present this to you is one, a desire to see a cleaner, better, more aboveboard crypto space in general, and two, an offering for you to do your own investigations, to go explore what Dylan has to say, and come to your own conclusions. On October 4th, Dylan tweeted

thread on the web of deception with Justin Sun around Huobi, STUSD, and TUSD, as well as the TUSD relationship with Binance and the drain of real USD liquidity from the crypto ecosystem. In late 2022, Justin Sun reportedly acquired a controlling stake in Huobi, now named HTX, which had over 1.5 billion tether deposits at the time. Over the summer, deposited tether funds started getting replaced by ST USDT. This substitution has been largely unnoticed by Huobi users. What is ST USDT? ST USDT, controlled by Justin Sun, claims to provide a yield by investing in, quote, real-world assets, such as treasury bills, while the actual flow of funds from Huobi's USDT to ST-USDT and then to just lend Dow indicates that no such investment into real-world assets occurs.

We can follow these swaps very clearly on-chain, and let's remember that ST-USD-T and USDT are considered as the same asset natively on Huobie as evidenced by their lack of ST-USD-T trading pairs. Instead, it goes to Just-Land under Sun's control, and the USD-T is not burned. Huobi wallets have been found to transfer significant amounts of USDT to STU-U-SD-T-Staking contract, then STU-SD-T circles back to Huobie. As seen in Bloomberg, you can see a shift in Huobi's reserves from July 1st to September 15th. On July 1st, USD-T made up 18.8% of reserves, but by September 15th, this had dwindled to just 4.7%, while Sun's ST-USDT grew to represent 14.5% of reserves. As an NLWSI here, Bloomberg was actually looking at the complete set of Huobi

reserve assets and found that on July 1st before STUSDT was introduced, tokens associated with Sun, which include Tron, made up around 38.7% of Huobi's reserves, And now tokens that are linked to him make up about 60% of Haube's reserves. This is obviously very top of mind, given the fact that FTX's collapse was associated with people realizing how much of Alameda's balance sheet was just Samcoins. Now back to Dylan's thread. Hwbysd T gets staked for STUSDT, which then moves to JustLend a platform Sun controls. The USDT never invests in RWA's but just sits in JustLend,

while Huobi users end up with STUSDT instead of the USDT they thought they owned. Looking at JustLend, currently there is 1.3 billion STUSDT supplied earning 4.23%, with only 15.15K of borrowing earning 0.01%. The real-world asset story is a lie. However, it isn't uniquely USDT this is happening with. T-USD, which is also controlled by Sun, plays a part. Over the past six months, a significant portion of T-USD burns have been attributed to just two wallets, both associated with Sun. So, isn't it convenient that you can now, quote-unquote, stake T-U-S-D to mint ST-U-S-D-T? In theory, the T-U-SD-S-D-S-Burned so that the supply decreases, and the supposed cash-backing it invests in T-Bills that earn a yield that's passed on to the holders of ST-USD-T-T-T-U-SD-T is minted, sent to Huobi, then sent to Sun's wallets, parked in

Just-Land, mince ST-U-S-D-T goes to Huobi, T-U-S-D-T goes to Huobi, T-U-S-D gets burned, ST-S-T-U-T on Hwobe remains. TLDR? Use the Tether or USDT brand and its reputation internationally, swap it for fake STUSDT, while it appears as regular USDT in the UIUX on Haube. And then what? What's the end goal? Why create an IOU of another stable and trick your users behind the user interface? For one, selling the USDT, which is actually mostly STUSDT for USDC on Hwobie. Data from Kiko shows this clearly through the USDC-USDT cumulative volume delta on Hwobie, with 350,000. million of tether being sold off for USDC in just over two months. Data from just over the last few days shows every single transaction over 100K

is swapping USDT for USDC on the pair. To reiterate, it's mostly STUSDT under the surface being sold in hordes for USDC, which can then be redeemed for US dollars at Circle. This is not unique to just HTX-HWOB though. We have seen similar developments on finance, albeit without the STUSDT's sleight of hand. Since the SVB collapse, CVD shows a $8.9 billion difference for the USDC-USD-T pair, indicating $8.9 billion of USDC buying while selling tether on Binance. Even if you remove the first month post-SvB collapse, the CVD for the pair is still

plus $4 to $5 billion of net buying for USDC. Also, according to Arkham, finance wallets preceding the SVB crash, to today are minus 4.27 billion USDC and up $384.1 million tether. Let's also note Binance's curious relationship with TUSD. On March 15th, mere days after the SVB collapse, and Binance re-enabling USD trading on the platform, 0% fee trading on little-known TUSD was enabled for the Bitcoin, Eth, and B&B pairs. While zero-fee trading is obviously anything but organic, the chart comparing Bitcoin

to tether pairs versus Bitcoin to TUSD pairs is something to behold. Dylan then shows a chart of Bitcoin T-USD volume absolutely leaping up. He then adds, but to be fair, it was an expected development from the zero percent fee trading promo. The real interesting chart, Dylan continues, is a look at the TUSD outstanding supply and the timing of its largest mince. Convenient timing for billion-dollar increases in the stable coin sent directly to Binance at a time where zero-fee trading is enabled.

Quite the timing, isn't it? Never mind that TUSD attestations are blatantly unreliable and shady, and its largest mints are coincidentally timed perfectly with market sell-offs. But the world's largest exchange is promoting said stablecoin with, with zero fee trading for its largest pairs? By the way, let's note the token distribution for TUSD, shall we? Dylan then shares a chart from Arkham that shows the vast, vast majority of TUSD controlled by either Binance or entities associated with Justin's son. Dylan wraps up, if it looks like a duck and quacks like a duck, it's a damn duck.

Most quote-unquote stables are not what they seem. Certain actors are scrambling for USD liquidity, and they're partially draining USDAC to do it. TLDR slash end. One, Sun is creating a web of deception, in order to siphon USD liquidity out of crypto using a multitude of fake stable coins, and dare I say, he is a fraud. 2. CZ and his embrace of TUSD, despite it being very suspect, is also ominous and wreaks of desperation. Three, TUSD minting patterns during sell-offs are suspect and must be noted. Four, Hwobe users get out of USDT into another asset and withdraw immediately. Number five, it's no wonder the chief strategy officer for Circle is saying that the crypto ecosystem is blatantly counterfeiting USD.

All right, guys, back to NLW. Now, Justin Sun, for his part, responded to this just by blocking Dylan. I haven't seen any commentary specifically addressing this, and I also haven't seen any follow-up reporting from other outlets like Blockworks or CoinDesk. But what I do see is a lot of people retweeting this, quote-tweeting this, and saying basically, this is something that needs to have an eye kept on it. Travis Kling said, read this. Now imagine a world where we collectively held our leaders to some semblance of accountability,

where Justin's son would actually have to respond to this thread thoughtfully and with evidence rather than post four. Why don't we demand a world like that? Well, friends, it is in that spirit that I share this Long Read Sunday. Go check it out, and let's see if we can't start the next bull run in a much cleaner, better, more above-board kind of space. Until next time, be safe and take care of each other. Peace.