Justin Sun’s allegations of FDUSD insolvency cause 9% depeg

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FDUSD, the sixth-largest stablecoin (market cap $2.5 billion), saw a significant depeg yesterday morning to $0.91. The peg has since recovered, though FDUSD suffered a market cap loss of about $200m.

The cause? The tweets of Tron founder Justin Sun.

Sun blasted First Digital, the issuer of FUSD, in a tweet alleging that the Hong Kong-based firm was “effectively insolvent and unable to fulfill client fund redemptions” for its stablecoin.

First Digital Trust (FDT) is effectively insolvent and unable to fulfill client fund redemptions. I strongly recommend that users take immediate action to secure their assets. There are significant loopholes in both the trust licensing process in Hong Kong and the internal risk…

— H.E. Justin Sun (@justinsuntron) April 2, 2025

Sun’s tweet included a link to a CoinDesk article detailing Techteryx’s lawsuit against First Digital’s CEO Vincent Chok for alleged mismanagement of the former’s reserves. Sun had previously been accused of influencing CoinDesk’s editorial decisions, which resulted in the removal of key editorial staff.

Techteryx is the issuer of the TrueUSD (TUSD) stablecoin, and had previously established First Digital as a fiduciary to manage its reserves.

The lawsuit alleges First Digital had misappropriated $456 million of Techteryx’s monies into “unauthorized trade finance loans.”

First Digital immediately denounced Sun’s allegations as a “smear campaign,” claiming that FDUSD was “completely solvent” and that the company would “pursue legal action to protect its rights and reputation.” 

The recent allegations by Justin Sun against First Digital Trust are completely false.

This dispute is with TUSD and not with $FDUSD. First Digital is completely solvent.

Every dollar backing $FDUSD is completely, secure, safe and accounted for with US backed T-Bills. The…

— First Digital (@FirstDigitalHQ) April 2, 2025

Sun doubled down in a second tweet an hour later, asserting that his claim regarding FDT’s insolvency was “a factual statement.”

According to First Digital’s latest February 2025 monthly reserve report, the company’s reserves at the time totaled $2,051,348,188 — backing a total issued supply of $2,041,924,819 FDUSD.

Like most centralized stablecoins, First Digital’s collateral backing consisted of primarily US Treasury bills, overnight fixed deposits, and US dollars.

While attestation reports are helpful, there is still an element level of trust and counterparty risk inherent to stablecoins, Cork Protocol co-founder Rob Schmitt told Blockworks.

“If stablecoins are to underpin the global financial system, there will be a clear demand to hedge against these risks, without which there could be a lot of contagion potentially.”

“It’s not so different from what happened with USDC’s depeg during the Silicon Valley Bank chaos. There wasn’t fraud as claimed, but there was spillover of collateral damage from counterparty risk, which is inherent to any stablecoin design.”

FDUSD is largely known for being a stablecoin used on the Binance exchange, acting as a replacement for Binance’s BUSD stablecoin.

BUSD’s issuer, Paxos, was ordered by the New York Department of Financial Services to shut down the stablecoin in February 2023.

Arkham data shows that Binance holds the large majority (95%) of the FDUSD supply.

In response to the debacle, Aave has frozen FDUSD depositing and borrowing on its BNB Chain deployment.

I don’t think there’s any issue with fdUSD, but as an abundance of caution and to protect Aave users,$FDUSD deposits & borrows have been frozen on Aave BNB instance. If you’re a current user no change or risk,

freezing a reserve just means no new position can be created.

— Marc “Billy” Zeller ? (@lemiscate) April 2, 2025

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