ChainArgos General Counsel Patrick Tan claims that Justin Sun and Huobi are running a sophisticated scam involving the world’s largest stablecoin Tether (USDT). Specifically, Tan claims that Sun’s liquid staking token stUSDT is a “staking system that does not send the stablecoins where they are advertised.”
Protos previously reported on Sun’s multi-hundred million dollar relationship with Tether Ltd. as a direct USDT minting customer. It turns out that Sun’s relationship with Tether may have been more lucrative than anyone could have imagined.
It all starts with JustLend, a Justin Sun-winning Tron-based financial platform.
Users who deposit USDT to JustLend will receive Staked Tether (stUSDT) in return. More specifically, they receive a “wrapped” version on JustLend, Wrapped Staked Tether or wstUSDT, which is converted into the common stUSDT, which in turn can supposedly be redeemed for USDT.
JustLend claims that stUSDT is comparable to stETH, the staked ether of Ethereum’s largest liquid stake service Lido. In fact, Lido is betting on ETH as promised. In contrast, JustLend merely sucks the line into a black box controlled by Justin Sun.
The implications are profound. Tan says JustLend’s liquid staking token, stUSDT, could be a covert way for Sun to quietly liquidate its other assets. Meanwhile, Sun is able to maintain a confident demeanor and act like he supports Tether and the crypto industry while unloading his bags of coins Taking control of Huobi customers’ tethering.
Liquidity chains to hide the truth
Investigative journalist Coffeezilla revealed that Sun had previously used another stablecoin program to liquidate part of its most significant crypto asset, Tron (TRX). According to Coffeezilla’s research, Sun once owned 94% of the USDD stablecoin supply. While promoting “392% to 584%” APY for USDD deposits on JustLend, Coffeezilla explained how Sun secretly liquidated its flagship TRX holdings by pegging them to USDD through a series of liquidity pools.
According to Tan, something similar could happen with stUSDT.
Users who deposit Tether to JustLend can receive stUSDT, which is said to be worth at least one USDT plus a return. stUSDT’s return, according to JustLend, comes from JustLend trading fees plus investment returns from USDT investments in Real World Assets (RWAs), such as: B. interest-bearing bonds.
Tan wonders: “USDT ending in JustLend was used to purchase RWAs such as treasuries. Why wasn’t this Tether burned?” A search for this Tether shows that it is simply sitting on JustLend… All of this leads to the disturbing conclusion that The Tether on Huobi that belonged to customers has now been replaced by a handful of promissory notes in the form of stUSDT, with the Tether then re-collateralized to JustLend.”
Some of these stories will be familiar to those who watched the collapse of FTX. First, users deposit assets on the exchange and use them to purchase USDT. Then, in the background, the exchange uses customers’ assets for its own shenanigans. Tan also suspects that JustLend is using the assets of Huobi customers.
Read more: On-chain data shows Justin Sun controls virtually all stUSDT
Huobi provides customers’ USDT for the program
The media portrayed Sun as the once-anonymous backer of a stock deal in which Huobi founder Leon Li sold his majority stake in the Huobi exchange, once popular with Chinese traders. Over the years, Huobi has lost significant market share to other exchanges like Binance, but Sun had other plans to refresh its well-known brand.
The magic happens behind the scenes.
Examining on-chain data, ChainArgos’ Tan believes that one of Huobi’s wallets transferred 100 million USDT to JustLend’s stUSDT staking contract address.
Next, this wallet sent 100 million USDT to a “repeater wallet,” which forwarded the funds to another Huobi-controlled wallet called “TRON HB.”
Subsequently, the funds routed from the repeater wallet were sent to an address used to mint and burn TUSD.
This TUSD minting and burning address minted an unusual amount of TUSD, particularly in the week that Silicon Valley Bank and Signature Bank went under. Both USDT and its main stablecoin competitor USDC have decoupled significantly from $1 this week.
Where is Justin Sun’s USDT and stUSDT?
In summary, Tan describes how Huobi ends up receiving a lot of stUSDT The USDT used to mint stUSDT remains with JustLenda credit protocol controlled by Sun.
It’s worth repeating Tan’s summary of the precarious state of Huobi customer retention: “The Tether on Huobi that belonged to customers has now been replaced by a handful of promissory notes in the form of stUSDT, with the Tether then re-collateralized to JustLend.”
Worse still, stUSDT claims that the funds from its token sales will be used to purchase safe assets such as treasury bonds and other RWAs. However, Protos was unable to find any evidence that JustLend’s Real World Asset Decentralized Autonomous Organization (RWA DAO) even existed. For example, the US Treasury does not accept stablecoins as payment for treasury bonds that supposedly back some stUSDT tokens.
Protos also noted that Justin Sun and Houbi control most of the stUSDT supply.
Finally, it doesn’t help stUSDT’s reputation that Binance’s CoinMarketCap lists it as an “untracked project.” Worse, its most popular trading pair, stUSDT/TRX, is on Sun’s Tron blockchain and is paired with Sun’s unregistered security, TRX. Third, CoinGecko and CoinMarketCap both have the largest trading volume of stUSDT on the Sun award-winning exchange SunSwap.
Previously, Sun had supported Houbi and acted as if he was just an advisor. Now he could support JustLend and stUSDT with a complicated scheme of Tether and stUSDT. USDT, which customers once held on Huobi, is now locked into a “decentralized” lending protocol dominated by Sun.
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