Why the Crypto Winter is the Industry’s Litmus Test

Lily Zhang

CFO, Huobi Group

The crypto industry is currently experiencing what many observers call its hardest “winter” – a reference to recent developments such as the Terra-Luna collapse, high-profile liquidity crises, and a steep decline in market valuation against a bleak macroeconomic backdrop of rising inflation and interest rates.

This unfortunate confluence of events has posed a profound challenge to digital asset exchanges and investors alike. It has brought to the forefront the impact of market volatility on business and investors’ assets, and the severely weakened investor sentiment in this crypto bear market.

As one of the largest digital asset exchanges, Huobi Global has not been spared by the recent events. Notwithstanding, our core operations remain unaffected, which is largely credited to our built-in safeguards to maintain the stability of our platform and to protect the security of our users’ assets.

Putting user asset security first and foremost

Huobi Global puts users first by making the security of their assets our top priority. We have an industry-leading risk management system, with no known security breaches or incidents throughout our nine years of operations – a stellar track record unmatched by any other exchange. Our latest audit of potential risks took place in June 2022, which confirmed that all our users’ assets remain safe.

Huobi Global’s risk management reserve of 20,000 Bitcoins has remained unchanged since 2018 to hedge against extreme market situations (like the current crypto winter). Our capital reserves, which tided us through the industry’s recent liquidity crunch, are ringfenced from users’ assets to protect them against losses. This is augmented by our continued efforts to ensure compliant operations everywhere we do business, alongside other measures such as our robust vetting of new tokens to protect our users’ interests.

As a business, Huobi Global continues to have a healthy cash flow. This has allowed us to invest more than US$300 million in the industry even in this crypto bear market. Currently, our investment team is in talks to invest in more than 100 projects worldwide, involving a total of around US$6 billion.

Users’ withdrawal right guaranteed

Importantly, at a time when other crypto companies such as Celsius Network, Babel Finance and Vauld have suspended withdrawals due to “extreme market conditions”, Huobi Exchange users’ ability to make withdrawals remains unimpeded. For us, our users’ right to withdraw their assets is sacrosanct, regardless of market conditions. It goes to the very heart of their trust in us and is therefore something we take as seriously as our existence as a business. We guarantee their right to deposit and withdraw funds at any time.

Protecting users following the Terra-Luna collapse

When the Terra-Luna collapse took place, Huobi Global’s strategy to safeguard its users’ interests was three-fold: Assessing the situation in a timely and appropriate manner, promptly informing users of the risks, and operating the exchange platform on a user-centric basis. When Luna started its death spiral, we stopped accepting deposits for the token to keep its price stable. This ensured that Luna’s price on Huobi Global was the highest among all platforms during that critical period.  This protected Luna holders on our platform and gave them sufficient time to adjust their trading strategy.

As soon as it was confirmed that Luna was no longer being issued, we informed users who held Luna and UST of the risks in advance, so that they could make an informed decision. After providing extensive and detailed updates, we resumed deposits and withdrawals for Luna to meet our users’ trading needs.

Our responsibility as an industry leader

We believe that our robust risk management system and relentless focus on our users contributed to Huobi Global’s stability throughout the recent market turmoil. Other exchanges which engaged in overly aggressive investment strategies and did not sufficiently manage their risks fared less well, leading to a cascade of widely publicized liquidity crises. This likely contributed to the contagion effect which triggered market panic and undermined the stability of the entire crypto market.

Whenever a market crisis takes place, Huobi Global believes in meeting its responsibility as an industry leader to uphold public confidence in digital assets. By keeping our operations stable and continuing to make users’ asset security our top priority, this is clear evidence that investors can have peace of mind even in the most volatile of markets – as long as they use an exchange that practices strong risk management and makes no concession in safeguarding its users’ interests.

The crypto winter can therefore be analogous to the industry’s litmus test, to separate the wheat from the chaff to weed out exchanges whose business strategy and practices have left them defenceless in this “perfect storm” of events. By putting in place a strict regime which has withstood the test of time and market cycles, Huobi Global hopes this will provide a market reference for best-in-class practices, and eventually uplift industry standards across the board.

The ultimate winners are the users who will collectively determine our industry’s viability and success.

Photo by Rudy Issa on Unsplash