Rumors can act as a dangerous weapon, triggering panic and leading to capital flight. The cryptocurrency exchange , Huobi learned this the hard way, losing $500 million due to gossip that its leadership had been arrested in China and that the platform was on the verge of bankruptcy.

Huobi's TVL Drops by $500 Million

Initial reports of Huobi's troubles emerged on 4 August after the initial news that representatives from the exchange had been arrested in China in relation to investigations involving ties to gambling platforms. On Twitter, Huobi's spokesperson stated that rumors regarding the arrest of high-ranking exchange representatives were false.

However, in the meantime, there has also been mention of the platform's solvency issues, which were reportedly related to the devaluation of the stablecoin Tether (USDT).

Analytical data from DefiLlama confirmed that USDT and USD Coin (USDC) were among the stablecoins of which Huobi held less than $90 million in assets as of 5 August. According to the exchange's last audit, user accounts held $630 million in USDT alone. Thus, Adam Cochran suggested that Huobi has significant solvency issues.

The current data from DefiLlama shows that Huobi's wallets held just $72 million in USDT and USDC. Simultaneously, the exchange's total value locked (TVL) dropped $500 million, from over $3 billion to $2.5 billion.

Huobi's Ongoing Troubles

Even though Huobi denies these rumors, the outflow of capital from the exchange is undeniable. But, these are not the platform's only problems. In May, it had to shut down its operations in Malaysia after the Securities Commission Malaysia (SCM) intervened. In fact, the exchange had not registered as a local cryptocurrency operator, which meant that they had been operating illegally, leading to their website and mobile apps being blocked in the country.

Earlier in the year, Finance Magnates reported that the exchange was planning to lay off about 20% of its workforce, aiming to maintain "a very lean team" due to adverse changes in the industry and declines in cryptocurrency asset valuations.

According to Bitget's latest report by Bitget, the crypto space is currently dominated by Gen Z investors. The study revealed that Gen Z users, who are typically tech-savvy and influenced by social media, make up 44% of all copy traders on Bitget.