HTX exchange, formerly known as Huobi Global, is now switching its hot wallets, making it more challenging to carry out sanction screening, according to security firm TRM Labs.
In a follow-up report after the exchange was sanctioned by the U.K. in May, TRM Labs found that a typical address-list sanction screening method cannot keep pace with HTX actions.
HTX has stayed operational under the same brand but rebuilt its on-chain plumbing, rotating hot wallets and funding addresses on regular cycles across TRON, Ethereum, BNB Smart Chain, and Solana.
According to the security firm, sanctions enforcement now requires tracking the behaviors as much as addresses.
Address-list screening cannot keep pace. A static block list goes stale within hours and would clear most post-designation HTX activity. Behavior-based attribution follows the rotating infrastructure as new wallets come online.
Will HTX operations attract more scrutiny?
In most traditional cases, a hot wallet associated with a particular exchange or individual would be put on a blacklist for sanction screening. Whenever a positive red flag appears, one can be blocked or the funds frozen.
Several exchanges activated the same after the U.K sanctioned HTX for allegedly moving Russian funds. Bybit, Binance, and even Hyperliquid screened against flows from HTX-linked wallets. Whether innocent or not, any flows from HTX were flagged and frozen.
After the sanctions, the Justin Sun-owned exchange immediately moved $1.3B of its reserve funds to an undisclosed third party. Security analysts viewed the move as a way to prevent “government overreach” in case the U.K decides to freeze the exchange funds.
Besides using an unknown third party for custody, the exchange has now opted to use hot wallets for a limited period before discarding them. Whether this will protect its users or increase scrutiny of the exchange remains to be seen.
For TRM Labs’ policy head, Ari Redbord, institutional screening must adapt to limit the risk of HTX exposure. He said,
HTX is changing its wallets every few hours to stay a step ahead of screening built on static lists. Meeting that (institutional screening) requires behavior-based detection that identifies HTX’s wallets as they come online.
That said, HTX’s Bitcoin [BTC] exchange reserve declined sharply after the sanctions from 9.4K to 8.4K coins in the past two months. That translates to a 10% decline in BTC reserve post the U.K. sanctions.
It remains to be seen whether the U.K will intensify regulatory pressure on the exchange after the latest TRM Labs report.
Final Summary
- HTX exchange has reportedly moved $1.3B to an unknown third party and rotates hot wallets every hour amid U.K sanctions.
- Bitcoin exchange reserves on the Justin Sun-owned platform have dropped by 10% to 8.4K BTC.