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- FDUSD lost its peg on April 2 after Tron’s Justin Sun alleged First Digital’s insolvency, triggering market concerns.
- The issuer refuted Sun’s claims and reaffirmed that FDUSD is fully backed by the U.S. Treasury Bills and is considering legal action.
- The controversy reignites discussions on proof-of-reserve (PoR) audits, highlighting gaps in liability tracking.
The First Digital USD (FDUSD), a stablecoin pegged to the U.S. dollar, briefly lost its peg on April 2 following allegations from Tron founder Justin Sun. Sun claimed that First Digital, the entity behind FDUSD, is insolvent, leading to a market-wide stir and increased scrutiny of the stablecoin’s reserves.
First Digital quickly responded to Sun’s accusations, stating that FDUSD remains fully backed and redeemable at a 1:1 ratio with the U.S. dollar. In a statement posted on X, the company reaffirmed its financial health, emphasizing that every FDUSD in circulation is backed by U.S. Treasury Bills.
“Every dollar backing FDUSD is completely secure, safe, and accounted for with US-backed Treasury Bills. The exact ISIN numbers of all reserves are detailed in our attestation report and accounted for,” the firm stated.
First Digital Denies FDUSD Claims Slams Justin Sun
The firm clarified that its ongoing dispute involves TrueUSD (TUSD), another stablecoin, rather than FDUSD. Additionally, First Digital accused Sun of orchestrating a smear campaign. First Digital suggested that Sun’s claims aimed to damage a competing stablecoin.
“This is a typical Justin Sun smear campaign to try to attack a competitor to his business,” a First Digital spokesperson said.
Furthermore, the firm also indicated that legal action against Sun is under consideration, potentially escalating tensions between the two parties. The controversy reignites discussions about proof-of-reserve (PoR) audits. These audits are onchain cryptographic verifications. They confirm that custodians and stablecoin issuers hold the assets they claim.
Unlike traditional third-party audit reports, PoR uses zero-knowledge proofs and Merkle Trees to verify reserve holdings in real time. However, despite its advantages, PoR does not yet track liabilities against reserves, which critics argue remains a major loophole in stablecoin transparency.
Tal Zackon, founder of the Tres Finance auditing platform, previously told Cointelegraph that attestations and audits only provide “snapshots” of reserves. He added that this leaves room for manipulation or misrepresentation.
FDUSD Shockwave Reshaping Stablecoin Oversight
As stablecoins become integral to financial markets, regulatory pressure to improve transparency is mounting. Major financial institutions and crypto exchanges are increasingly demanding real-time reserve tracking, moving away from periodic audits that may not reflect the full financial picture.
This shift could force stablecoin issuers to adopt real-time PoR solutions, ensuring constant verification of reserves and liabilities. However, unless the technology evolves to include comprehensive liability tracking, concerns over stablecoin stability and trust will persist.
The FDUSD incident highlights the fragile nature of stablecoin confidence. It also underscores the ongoing battle over transparency, competition, and regulatory oversight in the rapidly evolving digital asset space.
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