First Digital Trust (FDT) denied Justin Sun insolvency allegations and said its stablecoin is fully backed with US Treasury bills.
Sun had made the allegation earlier in the day in a social media post, where he said the firm was insolvent and unable to process the redemption of its stablecoin, FDUSD.
The news caused FDUSD to break its peg and fall as low as $0.8726 before partially recovering to $0.9870 as of press time.
The incident has raised questions about the stablecoin’s solvency, the transparency of its issuer, and potential systemic implications for Binance, which holds a significant amount of the asset.
Insolvency allegations
First Digital emphasized that the dispute involves TrueUSD (TUSD), not FDUSD, and asserted that all FDUSD reserves are fully backed and verifiable through US Treasury Bills.
The company added that the specific ISIN numbers for the reserves are documented in its attestation report. However, the TUSD issuer claims that FDT allegedly misplaced roughly $500 million in TUSD into bad investments.
First Digital Trust added:
“Every dollar backing $FDUSD is completely, secure, safe and accounted for with US backed T-Bills. The exact ISIN numbers of all of the reserves of FDUSD are set out in our attestation report and clearly accounted for.”
The firm labeled Sun’s statements as a “typical Justin Sun smear campaign to try to attack a competitor to his business.” It said that rather than allowing the legal dispute over TUSD to proceed in court, Sun had launched a “coordinated social media effort to try to damage FDUSD as a business competitor.”
First Digital Trust said it would pursue legal action to protect its rights and reputation. The company also plans to hold an “Ask Me Anything” (AMA) event on X on April 3, right after Justin Sun’s own AMA.
Tron founder Justin Sun’s public statement urging users to withdraw assets tied to First Digital Trust was the primary catalyst for the depeg.
He said:
“There are significant loopholes in both the trust licensing process in Hong Kong and the internal risk management of its financial system. I urge regulators and law enforcement to take swift action to address these issues and prevent further major losses.”
Sun added that Hong Kong’s reputation as a global financial center was at stake in this case.
Binance exposure under scrutiny
According to Conor Grogan, head of product business operations at Coinbase, Binance holds approximately 94% of the FDUSD supply. This amounts to about $2.2 billion, with $1.5 billion originating from user deposits and $700 million from corporate funds.
He added that the FDUSD/BTC pair has historically been the most traded on the platform, making the depeg event a significant operational concern.
AP Collective founder Abhishek Pawa noted that FDUSD’s role within Binance’s infrastructure expanded rapidly after the platform began distancing itself from the Binance USD (BUSD) in early 2023.
That move came in response to US regulatory pressure when the Securities and Exchange Commission (SEC) and NYDFS labeled BUSD, issued by Paxos, a potential unregistered security.
Binance gradually phased out BUSD incentives, trading pairs, and promotional campaigns, shifting liquidity toward alternatives such as FDUSD, USDT, and TUSD.
The FDUSD crisis marks a stark contrast to the controlled wind-down of BUSD. Unlike BUSD, which was issued by a US-regulated entity, FDUSD was positioned as a more compliant alternative aligned with Hong Kong’s regulatory framework.
Binance integrated FDUSD deeply into its ecosystem, making its sudden instability more damaging in both reputational and operational terms.
According to Abhi, while Binance’s FDUSD reserves reportedly maintain 111% collateralization, the event has nonetheless cast doubt on the asset’s liquidity and redemption mechanisms.
He added that the FDUSD’s instability also reopens regulatory questions for Binance. After the BUSD debacle, the platform emphasized its renewed commitment to compliance and transparency.
However, the current episode may prompt renewed scrutiny of its due diligence and risk assessment practices, particularly regarding third-party stablecoin issuers.
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