Staked USDT (stUSDT), a protocol that supposedly invests in US Treasury securities to pay yields to users who ‘stake’ their tether tokens, has seen its utilization on Ethereum collapse as Justin Sun-owned Poloniex has exited its position, according to onchain data. 

Staked USDT is a token that has historically been used by entities and wallets closely connected to Sun, representing a majority of all tethers in reserves at HTX, a cryptocurrency exchange he advises.

Additionally, on Ethereum, huge portions of this token were controlled by 0x176F3DAb24a159341c0509bB36B833E7fdd0a132, an address that was previously tagged as “Justin Sun 4” on Etherscan but is now tagged as “Poloniex 9.”

Read more: WBTC supply contracts this month following Justin Sun custody drama

Poloniex’s abject refusal to complete a proof-of-reserves, despite Sun’s repeated promises and insistence on its importance, makes it more challenging to determine if this address is more under the control of Poloniex or Sun, insofar as there is a difference.

At times, this address controlled as much as 96% of the total supply of stUSDT on Ethereum. 

However, approximately three months ago, the exchange appeared to have requested a withdrawal of approximately $30 million worth of the token. This was followed two days ago by the withdrawal of approximately $11 million worth, and another $9.4 million today. 

These withdrawals have left the token nearly abandoned on Ethereum, with the largest remaining holder, 0x9FCc67D7DB763787BB1c7f3bC7f34d3C548c19Fe, having only $1.7 million worth of this token — approximately 90% of the total supply. 

The largest token holder on Tron, TDToUxX8sH4z6moQpK3ZLAN24eupu2ivA4, an HTX address, still holds a much larger $195 million, representing approximately 85% of the supply on Tron.

Protos has reached out to Poloniex to confirm it controls this address, but at press time had received no response.

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ChainArgos General Counsel Patrick Tan claims that Justin Sun and Huobi are conducting an ingenious scam involving the world’s largest stablecoin, tether (USDT). Specifically, Tan claims that Sun’s liquid staking token, stUSDT, is a “staking system that doesn’t send the stablecoins where they’re advertised.”

Protos previously reported Sun’s multi-hundred-million dollar relationship with Tether Ltd. as a direct, USDT-minting customer. It turns out that Sun’s relationship with Tether might have been more lucrative than anyone could have imagined.

It all begins with JustLend, a Justin Sun-championed and Tron-based financial platform.

Users who deposit USDT into JustLend receive Staked Tether (stUSDT) in return. More precisely, they receive a ‘wrapped’ version on JustLend, Wrapped Staked Tether or wstUSDT, which unwraps into the common stUSDT, which in turn can ostensibly be redeemed for USDT.

JustLend pretends that stUSDT is comparable to stETH, the Staked Ether of Ethereum’s largest liquid staking service, Lido. In reality, Lido actually stakes ETH, as promised. JustLend, to the contrary, just hoovers up tether into a black box controlled by Justin Sun.

The ramifications are profound. Tan says JustLend’s liquid staking token, stUSDT, could be a covert method for Sun to liquidate his other assets quietly. All the while, Sun is able to maintain an air of confidence and pretend to support Tether and the crypto industry while offloading his bags of coins and amassing control of Huobi customers’ tether.

Daisy-chains of liquidity to obfuscate the truth

Investigative journalist Coffeezilla revealed that Sun previously used another stablecoin scheme to liquidate an amount of his most significant crypto asset, Tron (TRX). According to Coffeezilla’s research, Sun once owned 94% of the supply of the USDD stablecoin. While advertising “392% to 584%” APY on USDD deposits on JustLend, Coffeezilla explained how Sun secretly liquidated his flagship TRX holdings by pairing them with USDD through a series of liquidity pools.

Something similar might be happening with stUSDT, according to Tan.

Users who deposit tether into JustLend can receive stUSDT which is supposed to be worth at least one USDT plus a yield. The yield of stUSDT, according to JustLend, derives from JustLend trading fees plus the investment returns of USDT investments into Real World Assets (RWAs), like interest-earning bonds.

Tan wonders, “USDT that ends on JustLend was used to purchase RWAs such as government bonds, why was this tether not burned? A search for this tether shows it just sits on JustLend… All of which leads to the uneasy inference that the tether on Huobi that belonged to customers has now been replaced with a fistful of IOUs in the form of stUSDT, with the tether then re-hypothecated to JustLend.”

Some of this story might be familiar to those who watched FTX collapse. First, users deposit assets on the exchange and use it to buy USDT. Then, on the back end, the exchange uses the customers’ assets for its own shenanigans. In the same way, Tan suspects JustLend is using Huobi customers’ assets.

Read more: On-chain data shows Justin Sun controls virtually all stUSDT

Huobi provides customers’ USDT for the scheme

Media outed Sun as the once-anonymous backer of an equity deal in which Huobi founder Leon Li sold his controlling stake in the once-popular exchange for Chinese traders, Huobi. Over the years, Huobi has lost significant market share to other exchanges like Binance, but Sun had other plans to refresh its recognizable brand.

The magic happens behind the scenes.

Studying on-chain data, ChainArgos’ Tan believes that one of Huobi’s wallets transferred 100 million USDT into JustLend’s stUSDT staking contract address. 

Next, that wallet sent 100 million USDT to a ‘repeater wallet’ that relayed the funds to another Huobi-controlled wallet, labeled ‘TRON HB.

Then, the funds relayed by the repeater wallet were sent to an address used to mint and burn TUSD.

That TUSD minting and burning address notably minted an unusual quantity of TUSD the week that Silicon Valley Bank and Signature Bank went under. Both USDT and its primary stablecoin competitor, USDC, de-pegged significantly from $1 that week.

Where is the USDT and Justin Sun’s stUSDT?

In summary, Tan describes how Huobi ends up with a bunch of stUSDT, while the USDT used to mint stUSDT stays at JustLend, a lending protocol controlled by Sun.

It’s worth repeating Tan’s summary of the precarious state of Huobi customers’ tether: “The tether on Huobi that belonged to customers has now been replaced with a fistful of IOUs in the form of stUSDT, with the tether then re-hypothecated to JustLend.”

Worse, stUSDT claims that funds from its token sales will be used to buy safe assets like government bonds and other RWAs. However, Protos couldn’t find evidence that JustLend’s Real World Asset Decentralized Autonomous Organization (RWA DAO) even existed. The US Treasury, for example, does not accept stablecoins as a form of payment for government bonds that supposedly back some stUSDT tokens.

Protos also found that Justin Sun and Houbi control most of the supply of stUSDT.

Lastly, it doesn’t help stUSDT’s reputation that Binance’s CoinMarketCap lists it as an “untracked project.” Worse, its most popular trading pair, stUSDT/TRX, is on Sun’s Tron blockchain and paired with Sun’s unregistered security, TRX. Third, CoinGecko and CoinMarketCap both show stUSDT’s largest trading volume on the Sun-championed exchange, SunSwap. 

Sun previously propped up Houbi while pretending that he was just an advisor. Now, he might be propping up JustLend and stUSDT with a complicated scheme involving tether and stUSDT. USDT that customers once held on Huobi is now daisy-chained into a ‘decentralized’ lending protocol dominated by Sun.

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Staked Tether (stUSDT), a product that promises to pay yield on tethers in return for investing in them and real-world assets, is almost completely controlled by Justin Sun-connected wallets and entities.

stUSDT claims to be governed by an entity called the Real World Asset Decentralized Autonomous Organization (RWA DAO), however, as mentioned previously, Protos couldn’t find any decentralized or autonomous governance structures related to this protocol.

The product’s website states that it was launched in partnership with JustLend DAO, but Protos was unable to identify any proposals or discussions in JustLend related to the launch of RWA DAO.

This seemingly non-existent DAO ostensibly takes the tethers staked by users and invests them in projects and assets in the real world as decided by the DAO. It then pays the returns back to stUSDT holders.

stUSDT does not currently have details of any of the investments it has made for this project.

Where are the stUSDT?

stUSDT has launched on both Tron and Ethereum, and holdings are intensely concentrated on both chains.

On Tron, there are currently approximately 436 million stUSDT, with ~92% of those tokens held at TDToUxX8sH4z6moQpK3ZLAN24eupu2ivA4, a Huobi address. Much of the remainder, ~7% of the total, is held in an address believed to be controlled by Justin Sun.

Huobi’s asset dashboard shows that stUSDT makes up approximately 13% of the total assets held by that exchange, significantly exceeding the quantity of non-staked tethers on Huobi.  

Currently, approximately 25% of the bitcoin held on Huobi is also in the form of WBTC on Tron, a product that has failed to provide any information on where the corresponding backing is for the token.

Huobi promised in November that within 30 days it would begin providing proof-of-reserve reports with a third party. No third party has provided confirmation of these balances, and Huobi customer service previously clarified to Protos that “after the release of the relevant announcement, we have connected with a third party, but then no third party can do this. So there are no third parties.”

Huobi appears to be owned at least in part by Sun. This means that approximately 99% of the total supply on Tron is controlled by Sun and Sun-connected entities.

Read more: Crypto exchange Huobi says two-year data breach wasn’t that bad

On Ethereum, there are currently approximately 72.5 million stUSDT, with ~72% controlled by 0x176F3DAb24a159341c0509bB36B833E7fdd0a132, an address tagged ‘Justin Sun 4’ on Etherscan. The entirety of the remainder, minus ~3 tokens, is controlled by 0x9FCc67D7DB763787BB1c7f3bC7f34d3C548c19Fe, an address that has received tethers and TrueUSD from Binance. The address has also provided liquidity to PancakeSwap on Ethereum and lent TrueUSD on Aave.

Why does it matter?

This project claims to be a DAO, but no DAO can be found. This project claims to be investing in ‘real world assets,’ but no disclosure is provided on those assets. In the meantime, Sun and related entities are in control of almost all of this token’s supply.  

For Huobi, the amount of this stUSDT significantly exceeds USDT, raising fears about the use of customer assets and highlighting how Sun uses a variety of protocols, entities, projects, and wallets in confusing money flows that lack true transparency.

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Staked Tether (stUSDT) is a token recently launched on Tron that claims to offer the ability to “unlock yields in real-world assets.” Users can deposit their TRC-20 USDT on the platform and then receive yield from the efforts of the stUSDT platform, which uses the USDT to ‘invest’ in assets. Currently, there’s about $213 million stUSDT — $180 million of which is held on Huobi. 

stUSDT is a rebasing token that pays users with additional tokens to represent their yield from the investments; it’s currently paying a “welcome campaign” APY of 10%.

At press time, the website doesn’t list any of its investments. Purportedly, these are managed by the ‘RWA DAO,’ though Protos was unable to identify any decentralized and autonomous structure governing this platform. This is done in collaboration with the JustLend DAO, another Tron-based project, as part of a ‘custody agreement.’ Once again, we were unable to find any details about this custody agreement or partnership with RWA DAO in the forums for JustLend DAO. Protos has reached out to stUSDT for clarification.

Justin Sun, the creator of Tron and “advisor” to Huobi, has compared stUSDT to a money market fund offered by Alibaba.

Read more: Gambling with Tether: Ultimate Bet, USDT perps, Tron bets, and the $1 peg

As part of a recent dispute over the amount of Bitcoin it held, Huobi published a press release directing people to a Nansen dashboard to show the assets it currently purports to hold. It revealed that Huobi currently has approximately $180 million in stUSDT, representing 85% of the total supply of stUSDT.

Huobi, “advised” by Sun, was the first to announce trading for this new Tron-based product.

Sun has a long history with Tether and is one of the largest single issuers of tethers. As of November 2021, he was responsible for issuing in excess of $200 million in USDT and was the first ever recipient of Tron-based tethers.

It remains unclear which assets stUSDT is invested in, how the ‘DAO’ is supposed to function, or why so much of this “decentralized” project has ended up at an exchange so intimately tied to the creator of JustLend and Tron.

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