First Digital Redeems $25.8M in FDUSD After Depegging, Sun Claims $456M Transfer

First Digital has successfully redeemed nearly $26 million in stablecoin withdrawals following a brief depegging of its FDUSD token from the US dollar. This event occurred after allegations of insolvency were made by Tron founder Justin Sun. On April 2, FDUSD briefly fell to as low as $0.87, triggering concerns about the stability of the stablecoin.

Sun intensified his claims on April 4, asserting that First Digital had transferred over $450 million of customer funds to a Dubai-based entity and violated securities regulations. He specifically stated, “FDT transferred $456 million of its custodial clients to a private company in Dubai without their authorization and has not yet returned the money.”

Despite these allegations, blockchain data from Etherscan indicates that First Digital has honored approximately $25.8 million in FDUSD redemptions since the incident. This action demonstrates the company's commitment to maintaining the stability and trustworthiness of its stablecoin. First Digital noted in an April 3 X post, “We continue to process redemptions smoothly, demonstrating the fortitude of $FDUSD.”

When users redeem FDUSD for US dollars, the corresponding amount of FDUSD is burned onchain to maintain a 1-to-1 peg with the US dollar, ensuring that the circulating supply matches the reserves. This process is crucial for maintaining the stability of the stablecoin and reassuring users of its reliability.

In response to Sun’s claims, First Digital has assured users that it remains solvent and that FDUSD is fully backed and redeemable. The company stated, “First Digital stands firm: Justin Sun’s baseless accusations won’t distract from Techteryx’s own failures— our stablecoin FDUSD remains fully backed and solvent.”

Stablecoin depegs, such as the one experienced by FDUSD, pose a greater systemic risk to the crypto market than a Bitcoin crash. Stablecoins are integral to liquidity, decentralized finance (DeFi), and user trust. The lack of transparency, collateral quality, and accountability among leading stablecoin issuers highlights the market's vulnerability to such events. To mitigate these risks, the market should enforce real-time audits, prioritize high-quality collateral, strengthen regulatory oversight, and diversify stablecoin usage to reduce reliance on a few dominant players.

The collapse of the $40 billion Terra ecosystem in May 2022 serves as a stark reminder of the potential consequences of stablecoin depegs. The algorithmic stablecoin TerraUSD (UST) yielded an over 20% annual percentage yield (APY) on Anchor Protocol before its collapse, which erased tens of billions of dollars of value in days. As UST lost its dollar peg, crashing to a low of around $0.30, the value of sister token LUNA plummeted over 98% to $0.84, highlighting the fragility of algorithmic stablecoins.