KuCoin CEO Johnny Lyu Denies Employee's Claim of Insolvency

KuCoin CEO Johnny Lyu on Saturday denied claims from an unnamed former employee that his exchange was facing insolvency, saying the allegation was “getting ridiculous.”

The claims were published early Saturday by a Twitter account named “Otteroooo,” who said an anonymous former KuCoin employee had stepped forward to claim the exchange was facing financial difficulties. “KUCOIN INSIDER CONFIRMS KUCOIN IS INSOLVENT,” Otteroooo wrote. “EX-EMPLOYEE WHISTLEBLOWS THAT ESTIMATED HOLE UP TO $500,000,000 KUCOIN MAY NOT HAVE THE COINS TO MEET DEPOSITORS’ REDEMPTIONS.”

Lyu responded later in the day in a post on KuCoin’s blog, writing, “Rumor is a big challenge for any big company as they take on a life of their own. One minute it’s just a rumor, but as it spreads across the internet, it often becomes the basis for fact — even when it isn’t fact at all.”

He then alluded to the fact that it was the second time in less than a month that he had faced the claim from Otteroooo. “The recent FUDs created by Twitter guy nicknamed ‘otteroooo’ is getting ridiculous,” Lyu wrote. (FUD is an acronym for fear, uncertainty and doubt.) “And each time otteroooo reached out to us, we try our best to answer his questions. Still, even if we explained everything, he is still ignoring facts and continue playing spreading his FUDs intentionally.

“While other users publicly admit their assumptions were wrong, otteroooo doesn’t mind making mistakes over and over, which makes us believe he is either bad in fact-checking and analyzing, or he has some interest in spreading the FUD,” he added.

Specifically, Otteroooo claimed KuCoin was affected by the May collapse of Terraform Labs’ ecosystem, including Terra USD (UST) and LUNA. Both tokens became worthless, prompting Terraform to rebrand LUNA as LUNC. Otterooo said that as of May 26, KuCoin’s wallets held 27 percent of LUNA’s circulating supply — despite the fact the exchange didn’t offer it for trading.

Because the holdings did not represent user deposits, Otteroooo suggested they represented KuCoin holdings financed by user deposits, meaning the platform would have lost customer money in the crash. A message from the anonymous former employee Otteroooo cited — written in Chinese — claimed they could confirm Otteroooo’s theory, and added that KuCoin employees found it “suspicious” the company had been raising funds despite allegedly being profitable.

“The most fatal fact is that Kucoin was the number one supportive exchange of UST,” the employee said. “Add to the fact that the exchange was shifting customers deposits there are plans to hold a retrenchment round after further fundraising.”

However, Lyu said in his Saturday statement that KuCoin did in fact support LUNA transactions on the Ethereum chain. In his conversation with Otteroooo, Lyu said, “I explained that before the LUNA incident, KuCoin supported LUNA (now LUNC) transactions in two chains — mainnet and ERC-20. And at the time, the LUNA token on ERC-20 is called Wrapped LUNA (wLUNA). His further question was if KuCoin has ever supported wLUNA deposit and withdrawal,” Lyu wrote. “I shared the links to two KuCoin announcements with him. ERC-20 LUNA has been supported in Jan 2021, and the service was suspended in May 2022.

“That’s the end of the conversation,” he added. “I also explained that as a platform (same for other crypto exchanges), most funds in KuCoin wallets do not belong to KuCoin, they belong to our users. So it is our responsibility to keep them secure and make sure users can always withdraw in full whenever they want. Having a LUNC wallet does not necessarily mean KuCoin as a company is holding lots of LUNC tokens, and I’m sure the difference is obvious.”

KuCoin users began circulating rumors about the company’s financial status on July 1, prompting Lyu to respond at the time the exchange was unaffected by “any ‘coin collapse'” and insisting “everything on KuCoin is operating well.”