FDUSD Depegs After Justin Sun Alleges Insolvency

FDUSD, a $2.5 billion stablecoin, briefly depegged by 10% after Tron founder Justin Sun called its issuer, First Digital Trust, insolvent.

“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,” Sun posted on X.

The stablecoin experienced immediate outflows, with more than $200 million of its total market capitalization being erased in just 20 minutes. The token has since recouped most of its losses and is trading back at $0.98.

First Digital denounced the claims, calling Justin Sun’s allegations “completely false.” “This is a typical Justin Sun smear campaign to try to attack a competitor to his business…FDT will pursue legal action to protect its rights and reputation,” said First Digital, which will be hosting an X space on April 3 to address the situation.

According to a Hong Kong court filing from Techteryx, FDT and its constituents are responsible for “large-scale fraud…in excess of US $500 million, and conspired to injure the Plaintiff by unlawful means.”

The fraud allegedly resulted in a $456 million hole in the balance sheet of Techteryx’s TrueUSD (TUSD) stablecoin. According to a report from CoinDesk, Sun, who is an advisor to TUSD, claims he provided the necessary funding to plug the deficit and stabilize TUSD.

TUSD experienced its own small depeg in February 2024, when the token fell 3% to $0.97. Despite the token’s ability to maintain its $1 peg, the stablecoin’s market capitalization has been highly volatile, topping out at $3.5 billion in October 2023 before dropping to the current $500 million.

First Digital Trust is a Hong Kong-based firm that launched in 2019 as a digital asset arm for Legacy Trust, a trust and custody company. Legacy has previously partnered with companies such as Ledger to offer institutional custody of ERC-20 tokens.

FDUSD was launched in July 2023 and experienced significant growth shortly after its launch when Binance, the largest centralized exchange (CEX) in the world, listed and promoted the token through a zero trading fee promotion.

First Digital Trust did not immediately respond to The Defiant’s request for comment.