TRON founder Justin Sun alleges that First Digital Trust (FDT) is “effectively insolvent” and unable to fulfill redemption requests.

Sun’s statement follows reports that he intervened to support TrueUSD (TUSD) after it was revealed that $456 million of its reserves were illiquid.

TRON founder Justin Sun has claimed that First Digital Trust (FDT) is effectively insolvent and unable to fulfill redemption requests.

What Happened: Sun urged users to withdraw their assets from any projects linked to FDT to avoid potential financial losses. His statement follows reports of his intervention to support TrueUSD (TUSD) after the revelation of $456 million illiquid assets in the stablecoin.

First Digital Trust has been managing TUSD’s reserves since Techteryx acquired the stablecoin from TrueCoin in 2020. According to court filings, Techteryx had instructed FDT to invest TUSD reserves into the Aria Commodity Finance Fund (Aria CFF). However, the funds were allegedly diverted to Aria Commodities DMCC, an unauthorized entity based in Dubai.

Between 2022 and 2023, Techteryx attempted to recover the funds but received little or nothing in return. As a result, the company took full control of TUSD’s operations by mid-2023 and isolated 400 million TUSD tokens to ensure redemptions could continue.

On the other hand, FDT stated that it had acted on Techteryx’s instructions and was not responsible for evaluating investment decisions. The company also cited anti-money laundering (AML) and know-your-customer (KYC) concerns as reasons for delays in releasing funds.

See More: TrueUSD (TUSD) Is Backed By U.S. Treasury Bills And Remains Segregated And Insoluble

FDT: No Issues With FDUSD

In response to Sun’s claims, First Digital Trust strongly denied the accusations, calling them "completely false." The company asserted that Sun was attempting to discredit competitors in the stablecoin market.

"We are deeply disappointed by Justin Sun's blatantly false statements concerning First Digital Trust and its operations in Hong Kong. It is clear that Mr. Sun is making a desperate attempt to discredit competitors in the stablecoin market and deceive the public with his fabrications."

The company emphasized that the dispute only involves TUSD and does not affect FDUSD, which it issues separately. First Digital Trust issues and manages FDUSD, a stablecoin pegged to the U.S. dollar and fully backed by U.S. Treasury Bills.

"First Digital Trust can confirm that FDUSD is fully backed by U.S. Treasury Bills and remains solvent and secure. We will be taking the necessary legal steps to defend our reputation and maintain the trust of our users."

The company threatened legal action against Sun and would take the necessary steps to defend its reputation and cooperate with the relevant authorities in any investigation.

Related News: TRON Founder Justin Sun Steps In To Save TUSD From Bankruptcy

Why It's Important: As the crypto community grapples with the implications of FDT's alleged insolvency and the potential impact on user funds, the situation underscores the importance of transparency, sound risk management practices, and the need for swift action by regulators in the rapidly evolving cryptocurrency domain.