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Cryptocurrency exchange Huobi has moved collateral for its HBTC tokens from official transparent wallets to opaque ones. The exchange refuses to comment. Should we be afraid?
Digital asset exchange platform Huobi has drawn attention to its own wrapped bitcoin token – HBTC. The reason was the movement of assets that supported the value of the token. The Block noted that assets worth $ 800 million, which supported the value of the tokens issued by the exchange, were transferred from official addresses available for free audit to non-transparent addresses.
Apparently, the collateral was distributed among other addresses under the control of Huobi. The problem is not that the redirected funds will necessarily disappear. Huobi can use its hot wallets for exchange to simplify the processing of transactions. The problem is that market observers will no longer be able to verify that the token is backed by sufficient funds.
The official audit page shows that $800 million worth of tokens are backed by less than $30,000 in collateral.
The Block reached out to Huobi for comment, but after an initial response, the exchange stopped responding to subsequent emails. The exchange did not provide any explanation as to why the bitcoins were moved, nor did it answer whether HBTC is fully secured at the moment.
In addition to the wrapped version of Bitcoin (BTC), Huobi manages wrapper tokens for six other major cryptocurrencies:
- Bitcoin Cash (BCH);
- Bitcoin SV (BSV);
- Filecoin (FIL);
- Litecoin (LTC);
- Polkadot (DOT);
- Tezos (XTZ).
Of the six tokens mentioned, only the HBSV token – the wrapped version of BSV – is fully secured by collateral from official wallets. The situation around the HFIL remains uncertain – at the time of writing, asset collateral data is not displayed on the audit page.
Situation on the market of wrapped tokens
The weakening of transparency puts HBTC at a disadvantage over a larger competitor, Wrapped Bitcoin, or WBTC.
WBTC is run by a conglomerate of cryptocurrency companies, which includes Compound and BitGo. The WBTC project website provides a list of 268 BTC wallets that contain $4.8 billion worth of bitcoin — and those wallets do contain that amount of cryptocurrency. This allows those who use the wrapped token to be sure that it is fully secured.
However, not all wrapped bitcoin tokens offer a high level of transparency. RenBTC, another version of packaged bitcoin with a market cap of $100 million, initially used chainlink’s cryptographic data service to prove the presence of reserves. But now, there’s only a report on its dashboard that says how much it has in reserve — an amount equal to the amount released on its network — and there’s no reference to where the money is stored.
The reason for the opacity of RenBTC is that every time part of the collateral is redeemed, the system sends these funds to the collector of the pledge and sends the remaining assets to a new wallet. As a result, the network simply cannot provide a list of wallets where funds are stored, as it would have to constantly update this list.
This could shed light on the processes inside Huobi, as it also constantly distributes funds to new addresses, each time gradually withdrawing them. The exchange may have adopted this system, but was unable to implement a way to track collateral, as this requires either the use of Chainlink or the setup of its own automated monitoring system.
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