Key Points
- Crypto analyst ErgoBTC expresses concerns about the backing of TRC20 BTC tokens on the Tron network, specifically 60,000 tokens in JustLend.
- Initial concerns arise when a user finds the supposed backing wallet with zero balance, questioning the tokens’ backing.
- Lack of transparency in custodian information adds doubts about TRC20 BTC tokens.
- Investigation finds no evidence of reported BTC transactions, implying the tokens may be partially unbacked, impacting JustLend’s reported TVL.
Crypto analyst ErgoBTC has recently taken to Twitter to voice concerns about the backing of TRC20 BTC tokens on the Tron network. According to ErgoBTC, there are serious questions surrounding the 60,000 TRC20 BTC tokens currently held in the JustLend protocol. The analyst suggests that these tokens may not be backed, which would imply an unbacked Total Value Locked (TVL) of $1.8 billion, accounting for approximately 50% of the TVL in the JustLend protocol.
Absence of evidence is not evidence of absence, but none of this would be necessary if the TRC20 BTC custodian was transparent.
Regardless, the biggest impact seems to be a completely fake JustLend TVL.
Approximately 50% of which is apparently unbacked. https://t.co/X5JAZeji2c pic.twitter.com/X635D53Eil
— 🏴∴glorified accountant∴🏴 (@ErgoBTC) July 21, 2023
Initial Discovery and Further Questions
ErgoBTC’s concerns were initially sparked by a tweet from user “alto | dollar.eth” who claimed to have found the wallet that supposedly backs the 60,000 ETH on Tron but discovered that its current balance is zero. This discovery raised further questions about the backing of TRC20 tokens on the Tron network.
Unlike typical centralized peg schemes, where the custodian provides transparency by advertising their reserve holdings, the TRC-20 BTC backing custodian’s information is practically non-existent. This lack of transparency adds to the doubts surrounding the backing of the TRC20 BTC tokens.
In order to get a clearer picture of the situation, ErgoBTC conducted an investigation into the existence of the total 114,000 BTC on the BTC blockchain. The findings suggest that if these coins do exist, they are not held in a dedicated address. Furthermore, a deeper dive into the 60,000 “mint” that occurred on August 21, 2022, revealed no evidence of this activity on the BTC blockchain.
The investigation also extended to major exchanges such as Poloniex, Huobi, and Binance, but none showed any signs of the 60,000 BTC transactions. The TronDAO, which is not explicitly used for backing TRC20 BTC, also showed no signs of related non-exchange addresses.
Possible Scenarios
Based on the findings, ErgoBTC concludes that the TRC20 BTC on Tron may be temporarily and partially unbacked at best, and at worst, still partially backed, with 60,000 BTC missing from the reported 114,000 BTC. This discrepancy has a significant impact on the reported TVL of JustLend, indicating that approximately 50% of the TVL is unbacked.
Furthermore, ErgoBTC traces the path of the 60,000 BTC, which were minted on August 21, 2022, and subsequently sent to JustLend as collateral for a 600 million USDC loan. Half of this loan was repaid within two hours, funded by an address attributed to Justin Sun. The remaining loan amount was funneled through another wallet, which also received funds from J-Sun and deposited over $1 billion to Circle between late September and early October.
End Point
It is worth noting that Huobi changed ownership on October 10, 2022, just one week after the >1 billion USDC deposits to Circle. Although the absence of evidence is not evidence of absence, ErgoBTC emphasizes that the need for such investigations could be eliminated if the TRC20 BTC custodian was transparent.
