HTX Delists Trump-Linked USD1, WLFI as Feud over Wallet Freezes Escalates

Converting to USDT

The platform is operated by Huobi Global, which was founded in China in 2013. The exchange, which rebranded as HTX in 2023, removed USD1 at 03:00UTC on 7 Jun, saying in a statement that eligible dollar-pegged USD1 holdings in user accounts would be converted to Tether’s stablecoin USDT at a 1:1 ratio.

On 26 May, Huobi Global was sanctioned by the UK as part of a wider move to cut off financial networks that authorities say have helped maintain Russia-linked payment channels. HTX said that Huobi Global "is distinct from the online HTX exchange," and that the designation does not impact the platform. 

"HTX's global operations remain unaffected, and all user funds are safe," it said.

UK sanctions

The platform, which holds approximately $4.06bn in total reported assets according to DeFiLlama, said it delisted the WLFI assets after WLFI "unilaterally imposed a freeze on specific HTX onchain addresses based on sanctions compliance reviews."

HTX suspended trading for the WLFI/USDT, USD1/USDT, BTC/USD1 and ETH/USD1 trading pairs as of 13:00UTC on 5 Jun "to safeguard users' assets, preserve market fairness, and mitigate potential systemic risks."

World Liberty Financial is the Trump family-linked crypto platform behind the USD1 stablecoin. Its WLFI token is used for governance.

Blacklist feature

The sanctions-related actions by WLFI included deploying a smart contract "blacklist" feature to freeze exchange-linked wallets. This feature had already been at the centre of the bitter clash between Sun and WLFI over the freezing of the crypto mogul’s personal assets, which triggered duelling lawsuits. 

Sun, who is WLFI’s largest single investor, sued the project in a US federal court in April, alleging that the venture committed fraud and coercion by utilizing the smart contract "backdoor" to unlawfully freeze his $75mn investment that covered 2.94bn WLFI tokens and strip him of his governance rights. He claimed this was after he declined to deposit more capital. 

Countersuit by WLFI

On 4 May, WLFI CEO Zach Witkoff announced an official countersuit for defamation filed in a Florida state court. WLFI alleged Sun used his X account – followed by more than 4mn users – to label the project a "scandal" and a "sham" at a critical time, coinciding with intense selling pressure and a contentious governance proposal on over 62bn locked tokens.

WLFI claims the conflict arose after it uncovered alleged misconduct, including prohibited straw purchases and aggressive short-selling by Sun-linked entities.

Whose wallets?

HTX took the action on WLFI to protect its users’ interests, arguing that the wallets are not Huobi's or HTX's property. "To be clear: These are not assets belonging to any sanctioned entity. They are not HTX’s assets. They are assets legally purchased and owned by individual users," a 6 Jun X post by HTX spokesperson Molly Fu said.

The exchange raised questions about the wallet freeze, which WLFI says is included in its terms of service. The terms reserve WLFI the hard-coded right to block and freeze wallet addresses and associated tokens that it determines are connected to illegal activity or violate its platform terms.

Freeze lift sought

"Do users truly own their digital assets, or can a project unilaterally revoke access at any time? User ownership is one of the core principles of blockchain," Fu said. "No project should be able to arbitrarily restrict lawful user assets without transparent procedures and clear justification."

HTX said it has asked WLFI to lift the freeze and restore users’ access to their assets. In the meantime, WLFI-related trading would be suspended "until the issue is resolved." Withdrawals will resume once the freeze is lifted, it said.

On 5 Jun, following the HTX announcement, the WLFI token declined by 7.5%, falling from roughly $0.06 to an intraday low of $0.0555, according to CoinMarketCap. Between 7 Jun and 8 Jun, the token made a slight recovery, trading between $0.0553 and $0.0573.