Justin Sun’s FDT Accusations Shake Crypto Market, $130M Wiped Out

Justin Sun has accused First Digital Trust of insolvency and urged users to withdraw their funds, leading to a market reaction that saw FDUSD temporarily depeg, while FDT denied the claims and called Sun’s statements a smear campaign.

Sun Accuses First Digital Trust of Insolvency

Tron founder Justin Sun has alleged that First Digital Trust (FDT) is insolvent and unable to fulfill redemptions for its TUSD stablecoin. His statement triggered concerns in the crypto market, leading to a temporary depeg of FDUSD, another stablecoin issued by the same entity, which fell to $0.87.

In a post on X, Sun urged users to secure their assets immediately and called on Hong Kong regulators to intervene.

“First Digital Trust is effectively insolvent and unable to fulfill client fund redemptions. I strongly recommend that users take immediate action to secure their assets.”

He further warned that Hong Kong’s status as a global financial center was at risk due to insufficient trust licensing and regulatory oversight.

Sun’s Legal Battle with First Digital Trust

Sun’s warning came shortly after legal filings revealed his previous intervention in Techteryx’s TrueUSD (TUSD) stablecoin. Court documents indicate that Sun had injected emergency liquidity into TUSD after $456 million in reserves were found stuck in illiquid investments.

According to filings from U.S. law firm Cahill Gordon & Reindel, these reserves were originally intended for the Aria Commodity Finance Fund (Aria CFF) but were instead redirected to a separate Dubai-based entity, Aria Commodities DMCC, without proper authorization. First Digital Trust, which managed TUSD’s reserves at the time, allegedly facilitated the transfer.

Plaintiffs in the case labeled these transactions as acts of misappropriation and misrepresentation. However, FDT CEO Vincent Chok denied any wrongdoing, stating that his firm acted under Techteryx’s instructions and had flagged concerns about KYC compliance related to the stablecoin issuer.

Market Fallout and FDT’s Response

The fallout from Sun’s allegations was swift. FDUSD, a stablecoin issued by First Digital Trust, dropped 5% from its peg, wiping out an estimated $130 million in market capitalization. Despite this, TUSD itself remained largely unaffected.

First Digital Trust refuted Sun’s claims, calling them a “smear campaign to attack a competitor.” The firm emphasized that FDUSD was fully backed by U.S. Treasury bills and that its reserves were accounted for in attestation reports. FDT also clarified that Sun’s dispute involved TUSD and not FDUSD.

Sun, who is a key backer of USDD and USDD 2.0 stablecoins under TRON DAO, has been entangled in controversies surrounding stablecoins in the past. His clash with FDT follows a CoinDesk report revealing that he had previously bailed out TUSD when nearly half a billion dollars of its reserves became illiquid.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice