Huobi’s new boss shakes up the crypto firm with a plan for China
Cryptocurrency entrepreneur Justin Sun is trying to revive the fortunes of digital asset exchange Huobi by once again focusing on China, using a digital citizenship program from a small Caribbean island .
Huobi, founded in 2013, was one of the largest crypto exchanges in the world before China’s crackdown, with around 19% of global crypto trading volumes in 2020, according to data provider CoinGecko. In 2022, after closing its customers’ accounts in China, its market share fell to 4%.
Other China-based exchanges have closed or successfully moved to other markets. The world’s largest crypto exchange, Binance, which was founded in China in 2017, quickly left the country as regulatory pressure mounted. But Huobi struggled to adjust its business model after the crackdown in China, and Mr Sun now wants the company to turn to the country again.
Huobi has no executives with “C-suite” titles – such as chief executive or chief financial officer – and he describes Mr. Sun, 32, as an adviser, part of a team that provides strategic guidance to the company. But Mr. Sun has effectively functioned as a company executive since late last year, according to people familiar with the matter.
According to some people, his plan to increase Huobi’s revenue includes a new way to circumvent crypto trading restrictions in China. Huobi has signed a partnership with the Commonwealth of Dominica, a small island nation that is ready to grant so-called digital citizenship even to those who have never set foot on its shores.
On the Huobi app, new users who choose Chinese as their nationality while verifying their personal information are encouraged to apply for Dominican digital citizenship. People familiar with the program said Chinese users will be able to trade on Huobi’s platform if they register for Dominican digital citizenship. Customers from other countries can also apply, but Huobi does not automatically ask them to do so.
A Huobi spokesperson said the company “uses KYC verification to prevent Chinese users from doing such things,” referring to a “know your customer” process that is required to verify customers’ identities. But two Chinese nationals in the country said they used the Dominican digital identity to trade on the platform.
The collaboration with Dominica, which has a population of around 72,500, is “the first important step in Huobi’s global development strategy”, the company said in November. Huobi began accepting applications for the program the following month.
“The Caribbean Strategy is definitely one of the most important priorities for Huobi,” Sun said in an interview. “We want to defend this kind of concept of freedom of nationality.”
Ben Charoenwong, an assistant professor of finance at the National University of Singapore, said the Dominican digital citizenship program could help Chinese nationals who want to trade cryptocurrency escape the reach of the country’s regulators.
“It’s easier when you don’t show up as a Chinese citizen; you are out of the Chinese financial system,” he said.
Some people in China have been able to circumvent crypto trading restrictions by accessing exchanges through virtual private networks, which hide their real location, and trading on the peer-to-peer market. Huobi’s push to win business in the country goes further than other exchanges by giving Chinese customers a way to trade.
Mr Sun was clear about the company’s intention to attract Chinese customers. He called Huobi “exchange” for China in a tweet and said on Feb. 20 that the exchange listed TCNH, a one-to-one stablecoin pegged to the offshore yuan, the most freely traded version of China’s currency. The stablecoin, which runs on Tron, a blockchain company founded by Mr Sun, has a circulation of around 10 million in March.
Huobi is taking a more conventional approach in Hong Kong, which is working hard to attract digital asset firms after its reputation as a business hub suffered from its strict Covid-19 policies. The exchange plans to establish its Asia headquarters in Hong Kong, Sun said in the interview. He is applying for a license in the city and intends to build his team there within the next six months, he said. Huobi is registered in the Seychelles, has an office in Singapore and is based in the Caribbean, a company spokesperson said.
Mr Sun said he viewed Hong Kong as an “experimental zone” for the rest of China and believed the city, governed by an agreement with China known as “one country, two systems “, could not have pushed for its crypto-friendly policies without the approval of the central government in Beijing.
“If we can really prove ourselves in Hong Kong, I think the future of crypto for Asia is also very big, very bright,” he said.
China’s central bank said in response to questions that its attitude towards cryptocurrency-related activities has not changed and that foreign stock exchanges are strictly prohibited from providing trading and other services to people in the country. country. The People’s Bank of China said it would “promptly deal with domestic and foreign business platforms that provide virtual currency-related services to residents in China.”
US authorities have stepped up a crackdown on the crypto industry. The Securities and Exchange Commission said on March 22 that it had filed civil lawsuits against Mr. Sun and three of his companies, alleging they had offered two unregistered crypto tokens and manipulated the prices of one of them. them. Mr Sun tweeted that the SEC’s complaint “lacks merit”. When asked for comment, a Huobi spokesperson referred The Wall Street Journal to Mr Sun’s tweet.
Confidence in Huobi has recently been tested, with its native HT token dipping momentarily earlier this month and falling back after accusations were leveled against Mr. Sun.
Huobi’s shift in strategy has been accompanied by a series of aggressive cost-cutting, in line with the broader crypto industry. Huobi said in January that it planned to lay off around a fifth of its staff, a move which Sun said was intended to help the company “prepare for a longer bear market”. Huobi employed at least 1,600 people when Mr Sun took office, a number that had fallen to around 1,200 by mid-January, according to people familiar with the matter. The cuts are still ongoing.
In December and January, Huobi told his staff in mainland China, through video calls and in-person meetings, that full-time staff would be transferred to freelance consultant contracts that would equate to lower pay and that their insurance and social security would be reduced, according to people familiar with the terms. The company denies doing this.
Hong Kong-based investment firm About Capital Management (HK) Co. took over Huobi from founder Leon Li, a former coder at Oracle Corp.
, in October. Terms of the acquisition were not disclosed. Mr. Li and About Capital did not respond to requests for comment.
Mr Sun became known for paying $4.6million at a charity auction to have dinner with billionaire investor Warren Buffett. He was born in Qinghai province in western China and studied at Peking University in Beijing before earning a master’s degree at the University of Pennsylvania. He was appointed Ambassador and Permanent Representative of Grenada to the World Trade Organization in December 2021. He often uses the title “His Excellency” or HE, when referring to himself, and his website described as a Chinese-grenadier diplomat.
On Jan. 4, Mr. Sun addressed the entire company on a group chat, attempting to calm frustrations over cost-cutting. “We will be able to increase the profitability and operational efficiency of the exchange by cutting the fat,” he said, according to posts seen by The Wall Street Journal.
“This is my 87th day since joining Huobi,” he wrote in a lengthy Chinese text. “During these three months, me and the new management team have done our best. For the past 87 days, we have been working after 2 a.m. every day, hoping to be recognized by all Huobi users and employees.
Mr. Sun signed the message, “His Excellency, Sun Yuchen,” using his Chinese name.
Write to Weilun Soon at [email protected] and to Elaine Yu at [email protected]
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