First Digital Trust Denies Insolvency Claims by Justin Sun, Defends FDUSD Stablecoin Stability

• FDUSD lost its peg after Justin Sun claimed First Digital Trust was insolvent.
• Binance holds 94% of FDUSD supply raising concerns after the depeg incident.
• First Digital Trust defends FDUSD’s stability backed fully by US Treasury bills.

Hong Kong-based First Digital Trust (FDT) stablecoin FDUSD has fluctuated after Tron founder Justin Sun alleged its insolvency. Sun claimed on X  that the First Digital Trust was “effectively insolvent,” preventing users from redeeming their FDUSD assets.

His statement triggered a sharp drop in FDUSD’s value which fell to $0.87 relative to Tether’s USDT and reached $0.76 versus Circle’s USDC on Binance before stabilizing at around $0.98. Despite FDT’s efforts to clarify the stability and financial strength of the FDUSD, it lost its dollar peg.

In his post, Sun requested users move their funds from FDT, claiming he identified vulnerabilities and cited its flawed risk management processes. He further criticized Hong Kong’s trust licensing process, warning of significant risks to investors. In response, First Digital Trust quickly denied the allegations, asserting that FDUSD remained fully backed by US Treasury bills and that the issue was related to a separate dispute with TrueUSD (TUSD), another stablecoin managed by FDT.

First Digital Trust’s Defense and Legal Response

First Digital Trust denied Sun’s bankruptcy claims and declared that FDUSD reserves were safely held in US Treasury bills with ISIN numbers in their attestation report. First Digital Trust declared Sun’s statements part of a “smear campaign” that targeted FDUSD’s reputation and business operations.

According to First Digital, the ongoing dispute concerning TUSD should be settled through legal channels rather than public social media campaigns.

The company’s representatives also indicated plans to take legal action against Sun for defamation. Additionally, they announced plans to hold a public AMA (Ask Me Anything) session on X right after Sun’s own AMA. This claim coincides with the firm’s aims to clarify the stability and financial strength of FDUSD.

Implications for Binance and the Crypto Ecosystem

Despite the response the FDUSD controversy has sparked concerns on Binance the world’s leading crypto exchange, which possesses nearly 94% of the entire FDUSD supply. Binance’s exposure to FDUSD is significant with approximately $2.2 billion of the stablecoin on its platform tied to user deposits.

Conor Grogan, Coinbase’s head of product business operations highlighted the operational risks that Binance faces especially since FDUSD is one of the most traded pairs on the exchange.

This event exposes the negative effects of FDUSD’s instability on the broader system. Binance shifted its support from Binance USD (BUSD) in early 2023, with FDUSD taking center stage within its exchange infrastructure. The instability raises concerns about how well the exchange evaluated and managed risks when integrating third-party stablecoin implementation. Binance maintains that FDUSD holds over-collateralized reserves, yet this incident renewed attention to how such assets handle liquidity and transparency issues.