In the Bitcoin and crypto space, the spotlight is once again on Justin Sun, the enigmatic figure behind the Tron blockchain. Recent allegations by prominent crypto researcher @ErgoBTC and a tweet by Adam Cochran have raised serious questions about the backing of TRC-20 Bitcoin on the Tron network.
With approximately 60,000 Bitcoin potentially unbacked, the Bitcoin community and the wider crypto industry are left wondering about the true state of affairs. The controversy centers around a potentially unbacked mint of 60.000 BTC TRC20 (worth $1.2billion) by Justin Sun and a transfer to JustLend, a decentralized lending platform on the Tron blockchain, for a 600 million USDC loan.
60.000 Bitcoin Unbacked?
@ErgoBTC’s extensive research has unearthed unsettling information. According to his findings, “While the TRC20 ETH was rehypothecated, 60k of the TRC20 BTC appear to have simply never been backed.” As the analyst outlines, in a traditional centralized peg scheme, transparency and trust are established through the disclosure of reserve holdings.
Unfortunately, information about the custodian and transparency concerning the TRC-20 Bitcoin backing remains obscure, if not “practically non-existent.” @ErgoBTC’s investigation delves deeper, examining the presence of the alleged 114,000 BTC on the Bitcoin blockchain.
The absence of a single dedicated address holding this substantial sum raises questions about its existence. As @ErgoBTC notes, “A single 114k BTC address does not appear on the BTC top holder list. So if the coins exist, they are not sitting in a dedicated address.”
As explained earlier, a pivotal moment in the investigation revolves around a 60,000 BTC “mint” that reportedly occurred on August 21, 2022. Yet, despite thorough analysis, @ErgoBTC’s search yielded no signs of this activity on the Bitcoin blockchain. The researcher further examined transaction volumes and identified no substantial movements during that period.
The Plot Thickens Around Justin Sun
The controversial mint of 60,000 BTC was followed by a loan to JustLend worth 600 million USDC. The research by @ErgoBTC also reveals a strange flow of funds thereafter. 300 million of the loan was repaid within 2 hours of creation, while 300 million repayments were funded by an address attributed to J-Sun, Justin Sun’s moniker.
The plot thickens with the involvement of crypto exchange Huobi (rumor has it that Sun is the shadow-owner). Furthermore, the discovery of over $1 billion worth of USDC deposits to Circle, originating from a new wallet that received funds from J-Sun, raises further concerns. Especially when considering that Huobi ownership changed hands one week after that.
Amidst the mounting evidence, the Bitcoin community and the wider crypto industry face the question of whether 60,000 BTC on the Tron network are indeed unbacked or only partially backed.
In fact, the researcher could not find any backing for the TRC-20 Bitcoin. There is no custodian, no evidence of 114,000 BTC in a single address, no evidence of backing for the 60,000 BTC mint in August 2022, and no evidence of the involvement of the “usual suspects.” Therefore, the researcher concludes:
These are signs that the TRC-20 BTC on Tron was at best temporarily and partially unbacked. And at worst, still partially backed (-60k of the reported 114k BTC).
Renowned researcher and analyst Adam Cochran commented:
Sun used fake unbacked assets to buy Huobi, and is now taking users’ assets from Huobi and Poloniex to put into his JustLend or to stake and keep yield for himself. Insane. Good thing CZ is hitching his wagon to this clusterfuck.
While @ErgoBTC emphasizes that the absence of evidence is not evidence of absence, the lack of transparency surrounding the TRC-20 Bitcoin custodian leaves room for doubt and skepticism. As the situation unfolds, Justin Sun and Tron may find themselves under increased scrutiny from both the Bitcoin community and regulators. Remarkably, Justin Sun’s response to these serious allegations is still pending.
At press time, the Bitcoin price stood at $29,796, hovering above the range low.
Featured image from Reuters, chart from TradingView.com