UK HTX Sanctions Flood Wallets, Risk Scores Blunted

On-chain investigator ZachXBT wrote that Britain’s May 26 designation of Huobi Global S.A., the Panama entity behind HTX, has led to widespread tagging of wallets and undermined the usefulness of sanctions-based on-chain risk scores. He described the designation as ‘a bit of an overreach.’

The Foreign, Commonwealth and Development Office designated HTX and 17 related parties on May 26, saying the firm routed more than $1.5 billion to Russian networks including A7 and Garantex. The action was the first time Britain applied banking-style sanctions to a crypto exchange and requires UK firms to freeze and trace exposed funds.

Compliance vendors that produce on-chain risk scores responded by tagging any wallet that ever touched HTX, including addresses that interacted with the exchange before the designation. ZachXBT argued those tags do not distinguish pre- and post-designation activity and have created many flags that do not reflect current risk. He wrote, ‘Basically now I have had to ignore the sanctions category when tracing cases by exposure since risk itself has become meaningless.’

The investigator contrasted HTX with previous enforcement targets such as Hydra and Garantex, which he said showed higher rates of illicit activity. He also claimed regulators missed a separate $1.25 billion laundering operation while tagging many wallets connected to HTX.

Practical consequences for users have already appeared. One user reported wallets holding 99.5% of their net worth were blocked from decentralized protocols after a few withdrawals that occurred after the HTX designation. The issue surfaced when Hyperliquid banned linked addresses on June 3 and OpenSea subsequently restricted every wallet in the same profile. Protocol-level bans are frequently driven by third-party compliance feeds rather than platform-level decisions.

ZachXBT urged affected users to move funds several hops through decentralized bridges and exchanges to obscure the original source. He wrote that reversing high-risk tags is not currently possible because protocols rely on external risk providers and those firms leave removal decisions to their clients.

The HTX case will test whether compliance vendors change how they apply sanctions labels, for example by separating pre-designation exposure from post-designation movement and by creating clearer processes for tag removal. Regulators and market participants will consider whether applying banking-style sanctions to crypto platforms requires different technical approaches to limit collateral impact on users.