First Digital Trust (FDT) has vehemently denied insolvency allegations made by Justin Sun, the founder of Tron. In a social media post earlier in the day, Sun claimed that FDT was insolvent and unable to process the redemption of its stablecoin, FDUSD. This news caused FDUSD to break its peg and fall to $0.8726 before partially recovering to $0.9870 as of press time.
The incident has raised concerns about the stablecoin’s solvency, the transparency of its issuer, and potential systemic implications for Binance, which reportedly holds a significant amount of the asset.
First Digital Trust clarified that the dispute involves TrueUSD (TUSD), not FDUSD, and emphasized that all FDUSD reserves are fully backed and verifiable through US Treasury Bills. The company stated that the specific ISIN numbers for the reserves are documented in its attestation report. However, the TUSD issuer has alleged that FDT misplaced around $500 million in TUSD into bad investments.
In response to Sun’s allegations, First Digital Trust labeled his statements as a “typical smear campaign” and accused him of trying to damage FDUSD as a business competitor. The company stated that it would pursue legal action to protect its rights and reputation.
Justin Sun’s public statement urging users to withdraw assets tied to First Digital Trust was the primary catalyst for the depeg of FDUSD. Sun expressed concerns about the trust licensing process in Hong Kong and the internal risk management of FDT’s financial system, urging regulators and law enforcement to take swift action.
The exposure of Binance to FDUSD has also come under scrutiny. According to Conor Grogan, head of product business operations at Coinbase, Binance holds approximately 94% of the FDUSD supply, amounting to about $2.2 billion. This includes $1.5 billion from user deposits and $700 million from corporate funds. The sudden instability of FDUSD has raised operational concerns for Binance, especially since the asset was deeply integrated into its ecosystem.
The FDUSD crisis has reopened regulatory questions for Binance, particularly regarding its due diligence and risk assessment practices with third-party stablecoin issuers. The platform’s commitment to compliance and transparency may face renewed scrutiny following this episode.
Overall, the dispute between First Digital Trust and Justin Sun, as well as the implications for Binance, highlight the challenges and risks associated with stablecoins and their issuers in the cryptocurrency market. It underscores the importance of transparency, accountability, and regulatory compliance in ensuring the stability and trustworthiness of these digital assets.