First Digital Trust Denies Insolvency, FDUSD Depegs 13%

First Digital Trust (FDT) has vehemently denied allegations of insolvency made by Justin Sun, asserting that its stablecoin, FDUSD, is fully backed by US Treasury bills. Sun's claims, made via social media, suggested that the firm was unable to process the redemption of its stablecoin, leading to a temporary depeg of FDUSD, which fell to as low as $0.8726 before recovering to $0.9870.

First Digital Trust clarified that the dispute pertains to TrueUSD (TUSD), not FDUSD, and emphasized that all FDUSD reserves are fully backed and verifiable through US Treasury Bills. The company provided specific ISIN numbers for the reserves in its attestation report. However, the TUSD issuer alleges that FDT misplaced approximately $500 million in TUSD into poor investments.

First Digital Trust described Sun's statements as a "typical Justin Sun smear campaign" aimed at damaging a business competitor. The firm plans to take legal action to protect its rights and reputation and will hold an "Ask Me Anything" (AMA) event on X on April 3, following Justin Sun’s own AMA. Sun had urged users to withdraw assets tied to First Digital Trust, citing significant loopholes in Hong Kong's trust licensing process and internal risk management, and called for regulatory action to prevent further losses.

The depeg event has raised concerns about FDUSD's solvency, the transparency of its issuer, and potential systemic implications for Binance, which holds a significant amount of the asset. Conor Grogan, head of product business operations at Coinbase, noted that Binance holds approximately 94% of the FDUSD supply, amounting to about $2.2 billion. This includes $1.5 billion from user deposits and $700 million from corporate funds. The FDUSD/BTC pair has historically been the most traded on the platform, making the depeg event a significant operational concern.

Abhishek Pawa, founder of AP Collective, highlighted that FDUSD's role within Binance’s infrastructure expanded rapidly after the platform began distancing itself from Binance USD (BUSD) in early 2023. This move was in response to US regulatory pressure when the Securities and Exchange Commission (SEC) and NYDFS labeled BUSD, issued by Paxos, a potential unregistered security. Binance gradually phased out BUSD incentives, trading pairs, and promotional campaigns, shifting liquidity toward alternatives such as FDUSD, USDT, and TUSD.

The FDUSD crisis contrasts with the controlled wind-down of BUSD. Unlike BUSD, which was issued by a US-regulated entity, FDUSD was positioned as a more compliant alternative aligned with Hong Kong’s regulatory framework. Binance integrated FDUSD deeply into its ecosystem, making its sudden instability more damaging in both reputational and operational terms. While Binance’s FDUSD reserves reportedly maintain 111% collateralization, the event has cast doubt on the asset’s liquidity and redemption mechanisms. The instability also reopens regulatory questions for Binance, prompting renewed scrutiny of its due diligence and risk assessment practices, particularly regarding third-party stablecoin issuers.