Tron founder Justin Sun may have a unique relationship with Binance and its CEO Changpeng Zhao (CZ) that’s driven by Chinese money.
According to The Verge, Sun is the subject of an FBI investigation related to allegations that he gave insider information to Chinese traders while pumping-and-dumping crypto assets, then purchased citizenship to avoid criminal extradition.
Recently, an analysis by YouTuber and crypto investigator Coffeezilla revealed that Sun secretly minted 94% of allegedly decentralized stablecoin USDD, then advertised an alarming “392% to 584%” APY staking program on Sun.io.
(Both the stablecoin and his staking program were, according to Coffeezilla, a covert route of exit liquidity for Justin Sun’s massive holdings of TRX.)
Justin Sun’s two exchanges
When an investment group bought Poloniex from Circle in 2019, Sun first denied then confirmed that he was part of this investment group. At the time, Poloniex was seeing its reputation damaged due to Telegram and Discord-based pump-and-dump groups manipulating its markets.
As it turned out, Sun was more than familiar with another source of income that exploits similar weaknesses in human nature: Chinese gambling. Indeed, over two years into the operation of his Tron blockchain, over 95% of Tron’s network activity was gambling.
Sun thought he could bring back the early days of digital asset trading when exchanges and traders tended to skate around or flat-out ignore regulation. He moved Poloniex’s headquarters to the Republic of Seychelles, which had few digital asset-related regulations at the time. Sun’s existing employees in Boston would now work for a “technology and IT services” company named Augustech, LLC.
Seychelles was also the home of BitMEX where, according to then-CEO Arthur Hayes, it costs just “a coconut” to bribe government officials.
At one point, Sun demanded that the exchange relax KYC procedures and token listing requirements. Sun had an automated system built that could rubber-stamp any KYC submission even if it wasn’t a valid one.
Sun also had employees siphon off failed digital asset transactions. Customers could lose funds by sending digital assets to incorrect addresses — ones that Poloniex still controlled.
Huobi Global’s previous majority shareholder, Leon Li, sold his stake to a firm called About Capital Management in October 2022. Again, Sun denied that he was behind the acquisition, but he became an advisor for Huobi quickly enough to raise suspicions that he controlled About Capital.
Traders, however, weren’t confused about who immediately bid up Huobi Token (HT) by over 75% on the news that About Capital was bidding for the exchange.
San Francisco and BitTorrent
While in San Francisco, Sun bought the company behind BitTorrent, the once-popular peer-to-peer file-sharing protocol, for $140 million. He also compared himself to China’s murderous Chairman Mao during a meeting with BitTorrent executives.
While Sun was hiding from Chinese authorities in San Francisco, Tron still maintained offices in Beijing. One Beijing-based Tron executive named Baolong Xu admitted to BitTorrent CFO Dipak Joshi that the Beijing office engaged in market manipulation and insider trading. In the US, insider trading charges carry a maximum sentence of 20 years in prison.
BitTorrent employees attempted to limit their exposure to TRX and Tron blockchain activities as much as possible. However, Sun thought he could simply argue that TRX was not a security and, therefore, standard securities regulations should not apply. His big hurdle in this department involved convincing the Securities and Exchange Commission (SEC) or the US judicial system that the Howey Test didn’t apply. To help him do this, he hired a former employee of the SEC’s compliance division, David Labhart, as Tron’s chief compliance officer.
Soon after hiring Labhart, Sun decided to offer another coin, BTT, on behalf of BitTorrent. Labhart advised that issuing BTT with a token sale would be legally risky so Sun decided to simply airdrop it to TRX holders. However, the airdrop could be interpreted as marketing an investment opportunity, which is also legally risky. Labhart resigned soon afterward.
Justin Sun gains citizenship in Malta
Sun seemed to anticipate that his shady activities around Poloniex might catch up with him and so he planned another jump to Malta. At a meeting with senior officials, Maltese minister for the economy Silvio Schembri told Sun that he “needed to invest first.” Sun could buy Maltese citizenship for $1 million if he established residency under Malta’s Individual Investor Program.
Although Sun registered a company called Tron Limited in Malta, its use appears limited aside from it helping Sun to qualify for Maltese citizenship. In any case, Sun dissolved the company soon after he obtained his passport.
Besides giving himself another escape hatch, Sun also opened bank accounts in Malta. He’s frequently complained that banks in the United States and China could freeze his checking accounts — a common problem for digital asset organizations and their owners. He indicated that he might not have that problem in Malta.
Justin Sun and CZ
With an ownership stake in two exchanges and a potential escape hatch in case he runs into trouble, Sun sought even more allies. China-founded Binance is the largest digital asset exchange in the world by trading volume — far bigger than Poloniex and Huobi combined. Its size and the $17 billion fortune of its founder, CZ, could be prime motivators for Sun’s pursuit of a close relationship.
Binance previously provided early listings and promotions for TRX and Tron-based tokens. In October 2019, it activated support for TRX staking with a minimum deposit of five TRX, a curiously small amount when TRX was trading for less than two cents at the time. Binance also ran trading competitions for TRX and Tron-based tokens like BitTorrent (BTT), offering flashy prizes like new cars or Rolex watches.
The Verge alleges that CZ tipped off Sun that China was going to ban ICOs while Tron was still planning its offering. In what seems like an unlikely coincidence, Sun completed Tron’s $70 million ICO the very day before China announced its ban. Sun then promptly fled China, possibly to escape any potential consequences. That flight ended with him occupying a new, San Francisco apartment.
CZ repeatedly denied that he and Sun have maintained any more than a business relationship. However, they were seen vacationing together in 2019 while claiming that it was a business trip. CZ also wrote a promotional, if guarded, tweet about “randomly” seeing Justin Sun’s February 2020 appearance on CNN.
More recently, however, the friendship between the pair may have begun to show signs of strain and Poloniex suspended deposits and withdrawals of some stablecoins based on CZ’s Binance Smart Chain.
Read more: CZ on brink of second bailout for crypto
Sun also seemed amenable to bailing out FTX after CZ incited panic around the exchange and eventually passed on acquiring it. Afterward, both Sun and CZ indicated that they might be open to acquiring distressed assets from FTX — potentially setting themselves up for another round of cooperative crypto promotions.