ChainArgos General Counsel Patrick Tan claims that Justin Sun and Huobi are conducting an ingenious scam involving the world’s largest stablecoin, tether (USDT). Specifically, Tan claims that Sun’s liquid staking token, stUSDT, is a “staking system that doesn’t send the stablecoins where they’re advertised.”
Protos previously reported 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 might have been more lucrative than anyone could have imagined.
It all begins with JustLend, a Justin Sun-championed and Tron-based financial platform.
Users who deposit USDT into JustLend receive Staked Tether (stUSDT) in return. More precisely, they receive a ‘wrapped’ version on JustLend, Wrapped Staked Tether or wstUSDT, which unwraps into the common stUSDT, which in turn can ostensibly be redeemed for USDT.
JustLend pretends that stUSDT is comparable to stETH, the Staked Ether of Ethereum’s largest liquid staking service, Lido. In reality, Lido actually stakes ETH, as promised. JustLend, to the contrary, just hoovers up tether into a black box controlled by Justin Sun.
The ramifications are profound. Tan says JustLend’s liquid staking token, stUSDT, could be a covert method for Sun to liquidate his other assets quietly. All the while, Sun is able to maintain an air of confidence and pretend to support Tether and the crypto industry while offloading his bags of coins and amassing control of Huobi customers’ tether.
Daisy-chains of liquidity to obfuscate the truth
Investigative journalist Coffeezilla revealed that Sun previously used another stablecoin scheme to liquidate an amount of his most significant crypto asset, Tron (TRX). According to Coffeezilla’s research, Sun once owned 94% of the supply of the USDD stablecoin. While advertising “392% to 584%” APY on USDD deposits on JustLend, Coffeezilla explained how Sun secretly liquidated his flagship TRX holdings by pairing them with USDD through a series of liquidity pools.
Something similar might be happening with stUSDT, according to Tan.
Users who deposit tether into JustLend can receive stUSDT which is supposed to be worth at least one USDT plus a yield. The yield of stUSDT, according to JustLend, derives from JustLend trading fees plus the investment returns of USDT investments into Real World Assets (RWAs), like interest-earning bonds.
Tan wonders, “USDT that ends on JustLend was used to purchase RWAs such as government bonds, why was this tether not burned? A search for this tether shows it just sits on JustLend… All of which leads to the uneasy inference that the tether on Huobi that belonged to customers has now been replaced with a fistful of IOUs in the form of stUSDT, with the tether then re-hypothecated to JustLend.”
Some of this story might be familiar to those who watched FTX collapse. First, users deposit assets on the exchange and use it to buy USDT. Then, on the back end, the exchange uses the customers’ assets for its own shenanigans. In the same way, Tan suspects JustLend is using Huobi customers’ assets.
Huobi provides customers’ USDT for the scheme
Media outed Sun as the once-anonymous backer of an equity deal in which Huobi founder Leon Li sold his controlling stake in the once-popular exchange for Chinese traders, Huobi. Over the years, Huobi has lost significant market share to other exchanges like Binance, but Sun had other plans to refresh its recognizable brand.
The magic happens behind the scenes.
Studying on-chain data, ChainArgos’ Tan believes that one of Huobi’s wallets transferred 100 million USDT into JustLend’s stUSDT staking contract address.
Next, that wallet sent 100 million USDT to a ‘repeater wallet’ that relayed the funds to another Huobi-controlled wallet, labeled ‘TRON HB.
Then, the funds relayed by the repeater wallet were sent to an address used to mint and burn TUSD.
That TUSD minting and burning address notably minted an unusual quantity of TUSD the week that Silicon Valley Bank and Signature Bank went under. Both USDT and its primary stablecoin competitor, USDC, de-pegged significantly from $1 that week.
Where is the USDT and Justin Sun’s stUSDT?
In summary, Tan describes how Huobi ends up with a bunch of stUSDT, while the USDT used to mint stUSDT stays at JustLend, a lending protocol controlled by Sun.
It’s worth repeating Tan’s summary of the precarious state of Huobi customers’ tether: “The tether on Huobi that belonged to customers has now been replaced with a fistful of IOUs in the form of stUSDT, with the tether then re-hypothecated to JustLend.”
Worse, stUSDT claims that funds from its token sales will be used to buy safe assets like government bonds and other RWAs. However, Protos couldn’t find evidence that JustLend’s Real World Asset Decentralized Autonomous Organization (RWA DAO) even existed. The US Treasury, for example, does not accept stablecoins as a form of payment for government bonds that supposedly back some stUSDT tokens.
Protos also found that Justin Sun and Houbi control most of the supply of stUSDT.
Lastly, 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 paired with Sun’s unregistered security, TRX. Third, CoinGecko and CoinMarketCap both show stUSDT’s largest trading volume on the Sun-championed exchange, SunSwap.
Sun previously propped up Houbi while pretending that he was just an advisor. Now, he might be propping up JustLend and stUSDT with a complicated scheme involving tether and stUSDT. USDT that customers once held on Huobi is now daisy-chained into a ‘decentralized’ lending protocol dominated by Sun.