TL;DR
- Justin Sun warned about potential financial issues at First Digital Trust, pointing to fund mismanagement and difficulties in processing redemptions.
- FDUSD dropped 9% following Sun’s statements, losing $130 million in market capitalization. First Digital denied the allegations and announced legal action.
- Binance holds $2.2 billion in FDUSD, raising concerns about the impact potential instability in the stablecoin could have on its operations.
Justin Sun warned users about possible financial issues at First Digital Trust, the company responsible for managing TrueUSD’s stablecoin reserves.
According to his statements, the Hong Kong-based firm is struggling to process redemptions, triggering market concerns. His comments came after the revelation of a lawsuit filed by Techteryx, the company behind TrueUSD, against First Digital’s CEO, Vincent Chok. The lawsuit alleges that the firm redirected nearly $500 million from TUSD reserves into illiquid investments, compromising its ability to maintain backing.
FDUSD Plummets
Sun’s remarks caused a 9% drop in FDUSD, another stablecoin issued by First Digital, cutting its market capitalization by $130 million. The company denied the allegations, stating that FDUSD remains backed by U.S. Treasury bonds. It also announced plans to take legal action against what it described as a “smear campaign.”
Binance now finds itself in the spotlight, as it holds $2.2 billion in FDUSD, a substantial amount within its platform. Any instability in the stablecoin could impact the exchange’s operations, especially considering that BTC/FDUSD is one of the most traded pairs.
Court documents filed by Techteryx indicate that the reserve deficit emerged between 2023 and 2024. A portion of the funds intended to back TUSD was invested in the Aria Commodity Finance Fund. However, instead of being allocated to the Cayman Islands-registered entity, they ended up in Dubai-based Aria Commodities DMCC. These funds were then used for mining and renewable energy projects, limiting their availability for redemptions.
Justin Sun to Provide More Details in a Press Conference
Additionally, Techteryx accuses Chok of redirecting $15.5 million in unauthorized commissions and structuring $15 million in loans to Aria DMCC, disguising these transactions as legitimate investments. Chok denied the allegations, asserting that First Digital acted solely as a fiduciary intermediary following Techteryx’s instructions. Meanwhile, Aria maintains that the investment was conducted under previously agreed terms and was not designed to back a stablecoin.
Hong Kong’s financial sector is under scrutiny. Sun announced that he would provide further details on the lawsuit in an upcoming press conference.
