Binance's FDUSD Stablecoin Issuer First Digital Trust May Be the Next FTX

While FTX may have well been on its way to its demise, many believe the death blow was Binance founder Changpeng “CZ” Zhao’s public vote of no confidence

The cryptocurrency industry witnessed another round of drama unfold on Thursday as Tron founder Justin Sun launched a series of messages on X, formerly Twitter, claiming that Hong Kong-based trust company First Digital Trust, the issuer of Binance’s preferred stablecoin FDUSD, was insolvent and unable to meet client fund redemptions.

This claim triggered a rapid response, with many in the crypto community highlighting the striking similarity to the events that led to the demise of FTX.

Last year, Binance founder Changpeng "CZ" Zhao's public vote of no confidence on the rival exchange FTX had sparked a fatal run on the now-defunct platform's native token.

Now, it appears a firm with close ties to Binance may be on the receiving end of a similar attack.

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Throughout Wednesday and Thursday, Sun asserted that First Digital Trust was insolvent and advised users to take immediate action to secure their assets.

However, despite Sun's claims, FDUSD briefly lost its peg and fell as low as $0.87 on Thursday, a development that elicited comparisons to the earlier events with FTX.

"Remember when CZ publicly accused FTX of insolvency and triggered a bank run on the exchange?" one crypto community member wrote. Another added, "Justin is trying to run the same playbook. Insanely malicious especially if this accusation turns out to be false. The emperor has no clothes."

First Digital Trust, the entity managing the reserves for Binance's preferred stablecoin FDUSD, appears to be holding steady for now.

Its claims of insolvency and inability to fulfill client fund redemptions are yet to be substantiated.

Moreover, the market appears to have been appeased by data showing the firm processing redemptions and an attestation of its reserves.

Sun's attack against First Digital Trust appears linked to a recent legal filing in Hong Kong by Techteryx, the issuer of the TrueUSD stablecoin, against First Digital Trust. This filing was first reported by CoinDesk.

In the filing, Techteryx accuses First Digital Trust, which it had appointed as a fiduciary to manage its reserve, of misappropriating $456 million of its funds and failing to pay up when it needed it, leading to a bailout from Sun.

Techteryx has long been rumored to be owned by Sun, a claim both parties vehemently deny.

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First Digital Trust has denied the claims alleged in the legal filing and went further to label the filing and Sun's actions as an attempt to deflect from Techteryx's failings.

According to a statement by First Digital Trust, it never moved or invested any of Techteryx's funds without the latter’s express permission. The firm contended that it was the TUSD issuer's decision to make illiquid investments. It also claimed that redemption of these funds depended on AML/KYC concerns over Techteryx's beneficial owner, which the firm said has refused to reveal to date.

"We reiterate that FDT remains fully solvent, and every FDUSD is securely backed 1:1 by cash and cash equivalents. The exact ISIN numbers of all reserves backing FDUSD are clearly outlined in our attestation report, which is publicly available for verification. We are processing redemption requests as usual. We are seeking legal advice and FDT will pursue legal action to protect it’s [sic] rights and reputation," First Digital Trust said.