Popular crypto exchange Huobi and its version of wrapped bitcoin (wBTC) are not living up to the transparency that was offered initially.
Wrapping bitcoin is the process of taking bitcoin from the Bitcoin blockchain, storing it in a wallet, and issuing a tokenized version of it on another chain.
The $800M in assets underpinning the crypto exchange’s wrapped bitcoin are meant to be in open market wallets, but currently, they are not in those wallets.
Instead, the funds appear to have been distributed across other Huobi-owned exchange wallets. It’s possible that Huobi is leveraging its exchange hot wallets to facilitate transaction processing.
The problem is that the market participants can’t tell whether the token is still backed. According to Huobi’s official transparency page, the $800M in outstanding Huobi Bitcoin (HBTC) could be backed by less than $30,000.
Huobi developed HBTC as their unique version of wrapped bitcoin in February 2020. Huobi stated at the time that HBTC will be “transparent and verifiable”, allowing anybody to authenticate assets on both the Bitcoin and Ethereum blockchains.
The supply of HBTC was around 31,000 in early August 2021, while Huobi’s two official wallets held around 39,700 bitcoin.
However, between August 20 and August 26 of last year, almost all of this collateral was transferred out of both wallets.
The funds were divided into three portions and paid to a wallet and then it got transferred to a new wallet, with little amounts drained off at each turn.
Not all wrapped bitcoin initiatives offer a decent level of transparency. RenBTC, a wrapped bitcoin with a market cap of $100M, initially used the crypto data provider Chainlink to demonstrate its reserves.
However, it now only has a statement on its dashboard stating how much money it has in reserve, a sum equal to the amount issued on its network, and no links to where the money is kept.
renBTC manages its collateral when some of it is redeemed, it sends the funds to the person who redeemed it and moves the remaining assets to a new wallet.
As a result, it cannot simply provide a list of wallets containing the funds because the list would need to be regularly updated.
As Huobi also continuously distributes the funds to new locations while leeching off a little amount each time, this renBTC method could show some insight into Huobi’s operations.
Since it requires employing Chainlink or setting up an automated system, it’s possible that the Huobi embraced this technique by renBTC but did not create a method to track the collateral.
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