SEC Alleges TUSD Hasn't Been Backed By USD Since 2022

The United States Securities and Exchange Commission (SEC) believes the TUSD stablecoin hasn't been backed by U.S. dollars for multiple years.

On Sept. 24, the SEC announced a settlement with TrueCoin LLC and TrustToken Inc., the respective companies behind the TrueFi DeFi lending protocol and TrueUSD (TUSD) stablecoin, over charges they defrauded investors and engaged in the unregistered sale of securities.

The SEC alleged that TUSD was continually marketed as a U.S. dollar-backed stablecoin, despite $565 million or 37% of TUSD’s collateral being invested into a “speculative fund” by March 2022. The investment followed the sale of TUSD’s operations to “an offshore entity” in December 2020.

By September 2024, the SEC alleged that more than 99% of the assets backing TUSD were invested in the “risky” speculative fund. As such, the SEC accused the firms of continually defrauding investors by claiming TUSD is backed by U.S. dollars on a one-to-one basis. The SEC noted that the speculative fund holding TUSD’s assets frequently encountered redemption issues since 2022, with redemptions often taking up to 90 days to process.

TUSD was first launched in 2018. The SEC said TrueCoin remained “heavily involved” in TUSD’s operations until at least July 2023, despite TUSD's sale.

Unlicensed securities

The complaint also asserted that TrustToken and Truecoin, which operated as subsidiaries of the same parent company, Archblock, offered unlicensed investment contracts from November 2020 through April 2023 via the TrueFi platform — which paid interest on TUSD deposits from users, including U.S.-based investors.

TrueCoin and TrustToken settled the charges without admitting or denying the allegations by paying penalties of $163,766 each. TrueCoin also paid disgorgement of $340,930 and prejudgment interest of $31,538. The firms are also subject to judgments enjoining them for future securities law violations.

TUSD’s market cap is currently $485 million, marking an 87% decline from its all-time high of $3.8 billion on Oct. 19, 2023, according to CoinGecko. TUSD depegged from USD from January through March of this year, tagging lows of $0.96 on multiple occasions. TUSD also dipped to roughly $0.99 in June 2023.

Justin Sun’s Alleged Involvement

Justin Sun, the controversial founder of Tron, was frequently rumored to be the secret owner of TrueUSD (TUSD) in recent years, despite Sun denying the allegations.

In July 2023, the founder of Archblock,filed a lawsuit against Sun, accusing him of secretly acquiring TUSD through dubious means.

The lawsuit claimed Sun used various entities and individuals to hide his involvement and allegedly manipulated the crypto market through his acquisition of TUSD.

Wrapped Bitcoin concerns

The SEC's allegations could bode poorly for Wrapped Bitcoin — the largest BTC-backed ERC-20 token — which is poised for an ownership restructure involving Justin Sun.

In August, BitGo, the sole custodian and company behind WBTC, announced control over the project would be handed over to a joint venture between it and BiT Global, with Justin Sun and the Tron ecosystem also reportedly involved.

Sky, the project formerly known as MakerDAO, quickly moved to limit its exposure and later offboard WBTC, citing concerns regarding the transparency of the new venture and the track record of projects associated with Sun.

“Based on available evidence, it is highly likely that Justin Sun or affiliates control BitGlobal, with ownership concealed through shell companies and nominee directors,” said BA Labs, a risk adviser to Sky. “Justin Sun affiliated stablecoins and custodial products have a significant negative track record and pose elevated counterparty risk.”

However, the offboarding process was paused on Sept. 24 after BA Labs received assurance that BiT Global will not possess the ability to make changes to WBTC’s management or custody arrangements independently of BitGo.