Since early 2018, cryptocurrency exchange HTX has had its own token. HT
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The token is named after the exchange’s original brand, Huobi. The token was widely supported on exchanges and offered perks such as discounted trading fees.
However, token holders were surprised last January when the exchange announced that all these benefits would be withdrawn from HT Tokens and transferred to an entirely new token. This was not an upgrade that would allow all token holders to share the new tokens equally. Instead, token holders had to accept the loss of their benefits and be grateful that some of the new supply was allocated to them.
Naturally, many HT token holders were not very happy about this.
“I invested heavily in HT ($169,000) and the average amount is $7,” said one HT token holder who requested anonymity. “When Justin (Sun) decided to close HT and convert to HTX, the price of HT was around $2.30. So I had no choice but to continue the transition.”
“They literally turned HT into a shitcoin and bullied holders into forcing them to convert,” they added.
Other token holders expressed their frustration on HTX’s official Telegram channel, questioning the decision to withdraw from HT. They expressed disbelief about the HT-HTX conversion rate and blamed Justin Sun. He still insists that he is only an advisor to HTX, despite his apparent executive role in key announcements.
This announcement comes just months after the bridge to the HECO Chain, a blockchain operated by HTX that natively supports HT tokens, was leveraged for $86.6 million. The exchange also appears to have been exploited for $23.4 million. Sun spoke at the time of the exchange. will compensate About lost funds. On the HECO chain, withdrawals continue to be halted to date, including those of HT tokens, showing that the situation is not yet fully resolved.
Overall, this is a somewhat unusual situation. So we looked into the details of token conversion to understand what is happening. And it seems like token holders are really having a hard time.
Choosing a DAO Structure
The biggest element of the token change appears to be transferring control from the HTX exchange to the decentralized community. After conversion, the tokens that provide benefits on the exchange will no longer be officially owned by the exchange itself.
This may be related to recent regulatory actions. If a token is operated by a company and offers benefits that increase its value, this can be used to argue that it is a security. By switching to a DAO model, the goal may be to avoid these kinds of risks.
“It is true that decentralization could impact securities analysis of transactions involving tokens,” said Teresa Guillén, a partner at Baker & Hostetler LLP and a former attorney at the SEC. Expectations of benefit based on the efforts of others will cause the third prong of the Howey test to be unsatisfied. Because there is no expectation of benefit, or the expectation of benefit is based solely on the efforts of each participant and not on the efforts of others.”
“But since decentralization is also the ethos of many cryptocurrency communities, that drive may not be relevant to securities law analysis,” she added.
HTX announced a partnership with HTX DAO, claiming that HTX DAO is “an open, transparent, decentralized autonomous organization with a governance token of HTX Token.” The DAO is said to be offering some of its tokens to HT holders who want to convert them.
However, it is difficult to say that this DAO still exists in any meaningful form. HTX DAO’s official website shows that the governance feature is not yet activated. This means token holders cannot vote. This means that some group of individuals, seemingly at HTX, are writing the whitepaper for the new token and making all these decisions. The DAO’s official email (which most DAOs do not have) did not respond when asked for the names of current DAO members.
“It is important to clarify that the HTX DAO is not controlled by the HTX exchange,” an HTX spokesperson said when asked for comment. HTX Exchange does not determine the distribution of value in the ecosystem. The creation of HTX DAO, detailed in the white paper, is as follows: “We aim to enrich the ecosystem through decentralized governance by $HTX token holders and contributions from builders without avoiding regulatory scrutiny.”
A spokesperson declined to comment when asked to name an individual affiliated with the DAO who is not an HTX employee or specify a pseudonym account.
The white paper also tries to distance itself from HTX, but it doesn’t actually do that. The white paper states that while HTX shares a “similar name” to HTX (as if they are the same), it is not limited to exchanges or an upgraded version of the HT token. In fact, X stands for “adaptability, inclusiveness, and the potential for exponential growth.”
Token holders left out in the cold
The second notable decision in this token strategy is that HT tokens will not be migrated to HTX tokens, but rather the new token will take value from previous token holders and only give back a portion of it.
The announcement stated that the benefits of holding HT tokens will be transferred to HTX tokens starting in early February. This included removing transaction fee discounts from HT tokens and adding them to HTX tokens, while also using HTX tokens to increase users’ Prime membership levels and the number of rockets they have (another engagement tool). The exchange also announced that it will remove the HT accumulation program and add the HTX accumulation program. It was also mentioned that spot trading of HT tokens will be decommissioned and several pairs for it will be removed.
Everything that gave HT Tokens their purpose and value will be carried over to the new tokens. It is no surprise that the price of HT tokens has halved since the announcement. But despite all this, the exchange claims that the new token cannot replace the old token.
“It is important to understand that HTX is not a direct upgrade or replacement for HT. There is no one-to-one correspondence. Rather, it represents a broader role with a wider range of ecosystem contributors,” an HTX spokesperson said.
According to the HTX token whitepaper, this includes tokens used for partnerships and platform development. For example, some funds are allocated to paying salaries to developers, which may also include HTX employees.
Simply put, the HTX DAO will reclaim a lot of value from HT tokens (by transferring those benefits to new tokens) and whoever is in charge of the DAO (which currently appears to be HTX) will control the HT tokens. The lion’s share of it.
HTX DAO said it has allocated some of the new tokens to existing token holders. However, an HTX spokesperson stated that this will represent less than 19% of the HTX token supply. As a result, if all HT token holders convert to the new token, they will essentially be diluted by 400%.
What this shows is that the core reason for switching to the HTX token cannot simply be decentralization. This would have been a simple upgrade with no losses to token holders. Instead, HTX decided to reclaim most of the token value on its own under the guise of decentralization.
The essence of the token conversion process
As for the token conversion process, this too is complex and opaque and is determined by HTX.
First of all, the exact conversion rate over time is not defined. The only details HTX provided were: “With more assets and converting earlier, you will be rewarded with a more favorable conversion rate.” This means that the time and amount may vary, but the exact details are not disclosed. The conversion process takes place on the HTX exchange.
When we tested the conversion process in January, one HT token could be exchanged for 1.6 million unlocked tokens and 900,000 locked tokens. Considering the huge difference in the total supply of the two tokens, the conversion rate for unlocked tokens is approximately 1:0.83, but including locked tokens results in a conversion rate of 1:1.4.
To obtain locked tokens, users must perform certain tasks on the HTX exchange, such as achieving a certain amount of trading volume and paying a certain amount of trading fees. Additionally, the quantity of rockets provided based on exchange holdings is also taken into account.
This means that even in the early stages, users couldn’t get the same portion of the new token’s supply as they did with the old one without spending money on transactions and unlocking additional tokens.
Looking at the conversion rate for 1 HT token today, it is 1:0.22 for unlocked tokens and 1:0.34 including locked tokens. This means that anyone who owns 1% of the HT token supply will get 0.34% of the HTX token supply. This is only possible if you do a lot of work for HTX. The website itself states that doing so would mean exchanging $2.43 tokens for $1.27 tokens, which seems a rather unfavorable deal.
Because HT token holders only receive a small portion of the new supply, it is impossible for all holders to convert their tokens at a 1:1 ratio (taking into account the difference in total supply of the two tokens). Instead, it appears that early migraters were able to gain a larger percentage of the new supply if they included locked tokens, while later migraters suffered losses.
“Regarding the transition from $HT to $HTX tokens, this is a voluntary process designed to recognize and value the contributions of HT token holders, providing them with governance rights and potential for future growth,” an HTX spokesperson said.
Overall, the HTX token strategy seems to have been designed for several purposes. First, it could be to get regulators off the backs of exchanges. Although the same plan didn’t seem to work for Ooki DAO. Second, it appears that the value of HT tokens has been restored back into the hands of the HTX DAO, which appears to still be under HTX’s control for now. Third, operations must be performed on HTX to retain some of the value taken by token holders, which could increase trading volume on the exchange.
So it definitely seems to have worked out well for HTX. But what about token holders? Not much.
Additional reporting comes from Danny Park.
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