First Digital Trust (FDT) has refuted allegations made by Justin Sun regarding its solvency, asserting that its stablecoin is entirely backed by US Treasury bills. Earlier, Sun took to social media to claim that the company was insolvent and unable to fulfill redemption requests for its stablecoin, FDUSD.
This claim triggered a drop in FDUSD, which fell as low as $0.8726 before making a partial recovery to $0.9870 at the time of reporting. The situation has sparked concerns regarding the stablecoin’s financial stability, the openness of its issuer, and possible systemic effects on Binance, which holds a considerable amount of the asset.
FDT clarified that the controversy pertains to TrueUSD (TUSD) rather than FDUSD, asserting that all reserves for FDUSD are fully backed and can be verified through US Treasury Bills. The company pointed out that the specific ISIN numbers for these reserves are included in its attestation report. However, the issuer of TUSD claims that FDT has erroneously invested around $500 million in TUSD in unwise ventures.
In its statement, FDT declared:
“Every dollar backing $FDUSD is completely secure, safe, and accounted for with US backed T-Bills. The exact ISIN numbers of all the reserves of FDUSD are set out in our attestation report and clearly documented.”
FDT described Sun’s comments as a “typical smear campaign” aimed at undermining a rival. The firm accused Sun of attempting to hamper the ongoing legal battle over TUSD by initiating a coordinated social media attack on FDT. The company indicated its intent to take legal steps to safeguard its rights and reputation, and it also announced plans for an “Ask Me Anything” (AMA) session on X on April 3, immediately following Sun’s own AMA.
Sun’s public statement encouraging users to withdraw assets associated with First Digital Trust was the main trigger for the recent depeg. He stated:
“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.”
Additionally, Sun pointed out that Hong Kong’s status as a global financial hub was at stake due to this situation.
Regarding Binance’s involvement, Conor Grogan, head of product business operations at Coinbase, noted that Binance holds around 94% of the FDUSD supply, equating to approximately $2.2 billion; $1.5 billion of which is from user deposits while $700 million comes from corporate resources. Grogan also mentioned that the FDUSD/BTC trading pair has historically been the most active on the platform, making this depeg incident a major operational concern.
Abhishek Pawa, founder of AP Collective, highlighted that FDUSD’s integration into Binance’s framework accelerated after the platform began to distance itself from Binance USD (BUSD) earlier in 2023. This adjustment was made in response to US regulatory scrutiny when the SEC and NYDFS categorized BUSD, issued by Paxos, as a potentially unregistered security.
Binance gradually reduced its support for BUSD trading pairs and promotional efforts, subsequently shifting liquidity to alternatives like FDUSD, USDT, and TUSD. This crisis surrounding FDUSD presents a sharp contrast to the managed phase-out of BUSD. Unlike BUSD, which was issued by a US-regulated entity, FDUSD aimed to be a more compliant alternative within Hong Kong’s regulatory landscape.
The integration of FDUSD into Binance’s ecosystem means that its sudden instability has potentially severe repercussions, both reputationally and operationally. Despite reports indicating that Binance maintains 111% collateralization for its FDUSD reserves, concerns regarding the asset’s liquidity and redemption processes have been raised.
Moreover, this turmoil reignites regulatory concerns for Binance. Following the BUSD situation, the platform had stressed its renewed commitment to compliance and transparency. However, this current episode may incite further examination of its diligence and risk assessment methodologies, particularly regarding third-party stablecoin issuers.