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First Digital Trust (FDT) has redeemed almost $26 million in stablecoin withdrawals after its FDUSD token briefly lost its US dollar peg following allegations of insolvency by Tron founder Justin Sun.
First Digital USD (FDUSD) briefly depegged on April 2, falling as low as $0.87 after Sun claimed that First Digital was insolvent.
On April 4, Sun doubled down on his allegations, claiming the firm had transferred over $450 million of customer funds to a Dubai-based entity and that it violated Hong Kong securities regulations.
Source: H.E. Justin Sun
“FDT transferred $456 million of its custodial clients to a private company in Dubai without their authorization and has not yet returned the money,” Sun claimed.
FDT denies insolvency, accuses Sun and Techeryx of deflecting blame
Following Sun’s claims, First Digital assured users that it is solvent and that FDUSD remains fully backed and redeemable.
“We categorically deny any and all claims of FDT being involved in a coordinated scheme or misappropriation of funds,” FDT said in a statement on X on April 3.
It also alleged that Techteryx, the issuer of TrueUSD (TUSD) stablecoin, and Sun are “attempting to deflect the blame” and evade their own obligations to properly manage TUSD reserves. FDT stated:
Despite the claims, blockchain data from Etherscan shows First Digital has honored about $25.8 million in FDUSD redemptions since the incident.
“We continue to process redemptions smoothly, demonstrating the fortitude of FDUSD,” First Digital wrote in another X post on April 3.
When users redeem FDUSD for US dollars, the corresponding amount of FDUSD is burned onchain for the stablecoin to maintain a 1-to-1 peg with the US dollar and ensure the circulating supply matches reserves.
Sun announces a $50 million bounty to recover TUSD reserves
Amid the ongoing dispute, Sun announced on April 4 a $50 million bounty program offered to recover the TUSD reserves “misappropriated by bad actors, including FDT.”
The bounty amount is equivalent to about 10% of Sun’s liquidity support or the stolen TUSD reserves, he said, adding that the program will be fully transparent, with an official portal launching soon.
Source: H.E. Justin Sun
In another post on X, Sun also pledged to support Techteryx and make sure to bring “all fraudsters under the full force of the law.”
Stablecoin depegs “greater systemic risk” than Bitcoin crash
Stablecoins depegs pose “a greater systemic risk” to crypto than a Bitcoin (BTC) crash, as “stablecoins are integral to liquidity, DeFi and user trust,” according to Gracy Chen, CEO of Bitget.
Stablecoin depegs can cause “cascading failures like the TerraUSD collapse in 2022,” Chen told Cointelegraph, adding:
“To mitigate risks, the market should enforce real-time audits, prioritize high-quality collateral like US Treasurys, strengthen regulatory oversight and diversify stablecoin usage to reduce reliance on a few dominant players,” Chen added.
Related: Wintermute transfers $75M FDUSD since depegs, in $3M arbitrage opportunity
In May 2022, the $40 billion Terra ecosystem collapsed, erasing tens of billions of dollars of value in days. Terra’s algorithmic stablecoin, TerraUSD (UST), had yielded an over 20% annual percentage yield (APY) on Anchor Protocol before its collapse.
As UST lost its dollar peg, crashing to a low of around $0.30, Terraform Labs co-founder Do Kwon took to X (then Twitter) to share his rescue plan. At the same time, the value of sister token LUNA — once a top 10 crypto project by market capitalization — plunged over 98% to $0.84. LUNA was trading north of $120 in early April 2022.
Additional reporting by Helen Partz.
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