- Binance-backed stablecoin drops to $0.95 after Justin Sun claims issuer insolvency.
- Court docs allege First Digital Trust diverted TUSD funds, requiring Sun’s $456M bailout.
- FDUSD struggles to recover peg as Binance remains silent on the controversy.
First Digital USD (FDUSD), which is a stablecoin widely used on Binance, dropped below its dollar peg on Wednesday after accusations from Tron founder Justin Sun that its issuer, First Digital Trust, is insolvent. According to CoinGecko, First Digital USD, which is meant to maintain a value of $1, dropped to as low as $0.95 before recovering slightly to $0.97.
In his post via X (formerly Twitter), Sun claimed that the Hong Kong based First Digital Trust is unable to meet redemption requests from clients. But he warned regulators and law enforcement to intervene or they could see further financial losses. FDUSD denied the accusations, calling them a “smear campaign” and asserting that they (FDUSD) are fully backed by U.S. Treasury holdings valued at $2.5 billion. First Digital Trust also announced that they were going to take legal action to defend its reputation.
https://x.com/justinsuntron/status/1907453967652786522
First Digital Trust Scrutinized Over Reserve Management
The controversy surrounding First Digital Trust increased as details came from Hong Kong court documents. Techteryx, the company that acquired stablecoin TrueUSD (TUSD), had reportedly received a $456 million bailout from Sun in 2020. This bailout was necessary following allegations that First Digital Trust had diverted reserves meant to back TrueUSD to an entity based in Dubai instead of the intended investment vehicle in the Cayman Islands.
Techteryx, however, had been left unable to access its funds between mid-2022 to early 2023, according to Cahill Gordon & Reindel, a U.S. law firm that prepared the court documents. When the company tried to redeem its reserves, it allegedly got little to no funds in return, defaulting on obligations and failing to honor redemption requests. These developments were referenced by Sun, who doubled down on his First Digital Trust insolvency warnings as a ‘factual statement.’
Binance Involvement and Market Reactions
FDUSD is a significant player in the stablecoin market, particularly on Binance, which began promoting its use after discontinuing support for BUSD in 2023. The stablecoin’s sudden devaluation raised concerns among traders and investors, leading to increased market volatility. Although FDUSD regained some stability after the initial drop, its failure to maintain a steady $1 peg has fueled speculation about its long-term reliability.
FDUSD is a crucial player in the stablecoin market, especially on Binance, which started marketing its use upon cancelling support for BUSD, in 2023. The sudden devaluation of the stablecoin threw up fears among traders and investors, which triggered increased market volatility. After the initial drop, FDUSD regained some stability but its inability to hold a $1 peg was a cause for speculation as to whether it is a reliable long term proposition.
So far, Binance has not made any official comment about the situation. The exchange has been a key platform for the adoption of FDUSD and potential instability around the stablecoin could affect user confidence. First Digital Trust is meanwhile standing by its claim that its reserves remain in place, and that it is still able to process redemptions, despite Sun’s allegations.
The unfolding dispute between Sun and First Digital Trust can be an indication of broader implications to the industry as regulatory scrutiny over stablecoins continues to grow around the world. FDUSD’s price movement is still fluid, with investors watching closely and are awaiting further developments from regulatory bodies and its key players.
