Tron founder Justin Sun warns crypto users that First Digital Trust (FDT) is 'effectively insolvent'

The post was made on X in response to a CoinDesk report detailing a legal dispute between TUSD issuer Techteryx and FDT and immediately rattled markets.

Tron founder Justin Sun issued a stark warning to crypto users on Wednesday, claiming that Hong Kong financial firm First Digital Trust (FDT) is “effectively insolvent” and unable to process fund redemptions.

The claims, made on X in response to a CoinDesk report detailing a legal dispute between TUSD issuer Techteryx and FDT, immediately rattled markets. FDUSD - issued by a separate division of First Digital - plunged as much as 9%, wiping around $130 million from its market cap before partially recovering.

Sun, who previously distanced himself from TUSD, urged users to "take immediate action" to safeguard their assets. First Digital quickly countered, calling the statements "completely false" and part of a "smear campaign." It maintained that FDUSD is fully backed by U.S. Treasuries and its solvency remains intact.

However, concerns are quickly escalating. Binance, the largest global crypto exchange, holds over $2.2 billion in FDUSD - primarily in customer deposits - and the BTC/FDUSD pair is one of the exchange's most active trading pairs. Coinbase director Conor Grogan called the situation "a big deal" due to the token's role in Binance's liquidity pool.

The tension stems from a lawsuit filed by Techteryx in Hong Kong. The company claims that between 2023 and early 2024, it suffered a $456 million shortfall after funds meant to back TUSD were invested into illiquid and unapproved vehicles, mainly through Dubai-based Aria Commodities DMCC.

According to court documents, after acquiring TrueUSD in 2020, Techteryx appointed First Digital as its fiduciary to manage TUSD reserves. But instead of depositing funds into the Cayman-registered Aria Commodity Finance Fund (CFF) - a regulated investment vehicle - the funds were directed to Aria DMCC, a separate entity with exposure to high-risk ventures such as mining and renewable energy. Techteryx alleges these transactions were never authorized and described them as "blatant misappropriation and money laundering."

The firm also claims that $15.5 million in undisclosed commissions were directed to a third-party entity named "Glass Door" and another $15 million in loans were wrongly described as investments. First Digital CEO Vincent Chok denied the allegations and argued the firm acted solely under instructions from Techteryx. He attributed the fund retrieval difficulties to concerns over Techteryx's ownership and compliance profile.

As Tron founder and a figure known for swift action in the crypto sphere, Justin Sun's involvement adds urgency to the situation. Having provided emergency liquidity to backstop TUSD during the fund crisis in 2023, Sun is now placing the onus on Hong Kong's financial institutions and regulators to intervene.

According to Sun, more details will be disclosed at a Thursday press conference.

"Hong Kong's reputation as a global financial center is at stake," Sun wrote. "Similar financial fraud incidents must never happen again."