Substantial Outflow Reveals Investor Concerns

HTX, the digital-asset trading platform associated with industry figure Justin Sun, witnessed a considerable $258 million net outflow following its reactivation after a significant security breach. Data from DefiLlama between November 25 and December 10 showcased the funds departing the exchange, signifying unease among some clients due to the prior security incident. HTX encountered a $30 million loss in crypto tokens during the breach, prompting temporary suspension of withdrawals and deposits as a precautionary measure.

No Immediate Responses Amidst Concerns

Despite the substantial outflows, neither the exchange nor a spokesperson representing Sun responded immediately to inquiries regarding the exchange's fund movement. Justin Sun maintains links not only to HTX but also to Poloniex exchange and the HECO Bridge, which suffered hacking incidents in November, resulting in approximately $200 million in stolen crypto assets.

HTX’s Recovery Attempts and Current Status

Following the November incident, Sun announced an ongoing investigation and pledged complete compensation for HTX's hot wallet losses. This, however, follows a previous theft of $8 million from the platform in September, reflecting recurring vulnerabilities within the exchange's security infrastructure. Despite these setbacks, HTX maintained a position within the top 20 crypto exchanges by registering an average trading volume of $1.6 billion in the past 24 hours, according to CoinMarketCap figures as of December 10.

Monitoring HTX’s Reserves and Token Distribution

Investors and analysts increasingly scrutinise reserve movements and asset distributions in cryptocurrency exchanges post the FTX platform's collapse last year. DefiLlama data revealed that approximately 33% of HTX’s reserves consist of Bitcoin, while the TRX token from the Tron blockchain, launched by Sun in 2017, accounts for about 32%. HTX’s native coin HT makes up around 14%, followed by a Sun-backed token called stUSDT on 12%.

Evolution of HTX Reserves: Comparison Between Start of 2023 and Current Status

An intriguing shift occurred in HTX’s reserves composition, with a transition from well-known tokens dominating at the start of 2023 to a prevalence of Justin Sun-linked tokens in the current reserves mix.

HTX's reserve distribution at the start of the year with well-known tokens constituted a larger portion of the reserve allocation during this period. (Image Source: Bloomberg)

Presently, there's a noticeable shift in HTX's reserve distribution, with an increased prominence of Justin Sun-associated tokens within the reserves.

HTX's reserve distribution as of 8 December 2023. (Image Source: Bloomberg)

Legal Tussles and Recovery Efforts

However, TRX, pivotal within HTX's reserves, remains embroiled in US fraud allegations against Sun. The Securities and Exchange Commission (SEC) filed a lawsuit in March, accusing Sun and his entities of market manipulation to falsely inflate the token’s trading activity. Sun refuted the suit’s merit via Twitter at the time. Meanwhile, security firm BlockSec reported HTX's recovery of the $8 million stolen in September, but the $30 million from the recent breach remains under the control of the hackers, posing ongoing challenges for the exchange.

The repeated breaches and ongoing controversies surrounding Justin Sun's involvement in various platforms raise serious concerns about the security and sustainability of HTX and affiliated entities. Investors may need reassurances regarding enhanced security measures and regulatory compliance to restore confidence in these platforms.