Despite denials from its top management, there are indications that Kucoin, the Hong Kong-based cryptocurrency exchange may actually be insolvent. It could be recalled that on July 5, that the CEO of Kucoin. Johnny Lyu, denied insinuations that the exchange could be the next in line to collapse following losses it incurred due to the collapse of Terra token, LUNA.
$500 Million in Losses
A recent revelation by Otteroooo, says that Kucoin may not yet be out of the woods. According to the investigator, a whistleblower account from within the exchange shows that Kucoin staked LUNA up to the time that the cryptocurrency collapsed. He said that a high ranking director within the company confirmed that losses incurred is in excess of $500 million.
An email shared by the investigator from an employee of the exchange says:
“Hi, I am a Kucoin employee. Lately Kucoin has been raising funds which has been suspicious to a group of Kucoin employees, since Kucoin has been operationally profitable according to the leader (director or CEO), the LUNA blow up has cost Kucoin $400-500m…”
A Top Holder of The Terra Token
The report says that after LUNA started tanking last may from $80, Kucoin was the top holder of the wrapped version of the token (wLUNA). Wrapped LUNA is simply LUNA on another blockchain, so its market price is the same as that of LUNA on the Terra blockchain.
The report continues by stating that it was surprising that Kucoin had so much LUNA in its possession, considering that there was no listing which paired the currency on the platform. If LUNA was not being traded on Kucoin, what was the source of the large volume that the exchange held?
“Kucoin DOES NOT and STILL have not a wLUNA trading pair! so on 26 May 2022, Kucoin had ~27% of ALL circulating supply of wLUNA but none of them could possibly be users’ deposits since wLUNA was not accepted as a deposit on Kucoin!”
Probable Source of Kucoin’s LUNA
Otterooo said that the large LUNA holding by Kucoin could only come from one of two sources:
1) The company built up its treasury through fees it charged its customers and then gambled its profits away on LUNA.
2) The exchange used depositors funds to buy LUNA hoping to cash out profits from the asset’s presumed success at that time. But the gamble failed the exchange.
An Even Bigger Loss
The report says that since Kucoin didn’t offload its pre-LUNA crash LUNA, that the company has lost more than $12 billion. LUNA had a pre crash market capitalization of $40 billion.
Top UST Support from Kucoin
Other hints from the Kucoin insider according to the report is that Kucoin, is one of the top supporters of UST, the Terra stablecoin that lost its dollar peg. It regularly moved investors’ deposits and plans cutting down its workforce despite frantic moves to raise more funds.
“On Sep 2020, Kucoin was hacked for $275m. On May 2022 right before the LUNA collapse, Kucoin raised $150m. Shortly after, on July 2022, Kucoin mysteriously raised $10m from Susq for “ecosystem””
It questioned why Kucoin would be interested in raising such a paltry amount just 3 months after it raised $150 million.
It concluded that, contrary to the claims of CEO of Kucoin, Johnny Lyu, the links between Kucoin and LUNA is more than the company is willing to admit.