The team behind First Digital USD FDUSD/USD addressed concerns regarding financial stability Wednesday after the dollar-backed stablecoin briefly depegged following allegations of insolvency by cryptocurrency entrepreneur Justin Sun.
What Happened: First Digital confirmed that it has processed the initial redemptions following the FUD. It also assured that FDUSD is fully backed 1:1 and that their redemption channels are functioning smoothly.
The controversy erupted when Tron TRX/USD founder Justin Sun raised concerns about the company’s solvency and its ability to honor client redemptions.
“I strongly recommend that users take immediate action to secure their assets. There are significant loopholes in both the trust licensing process in Hong Kong and the internal risk management of its financial system,” Sun said.
First Digital strongly rejected the accusation, deeming it a “typical Justin Sun smear campaign” against business competitors. It said it’d pursue legal action to protect its reputation.
Following the allegations, FDUSD, currently the fifth-largest stablecoin by market capitalization, fell to $0.87, 13% below the $1 value it is supposed to trade at all times. It regained some of its value as of this writing.
Why It Matters: Launched in 2023, FDUSD is a 1:1 dollar-backed stablecoin issued by Hong Kong-based First Digital Labs, a subsidiary of the First Digital Group.
To ensure their value remains consistent, stablecoins are backed by reserves of the corresponding fiat currency, in this case, the dollar, held in regulated financial institutions. The 1:1 backing means customers can theoretically redeem one unit of the stablecoin for one unit of the underlying fiat currency at any time.
Stablecoin depeggings have been rare. USD Coin USDC/USD lost its dollar peg for a few days in March 2023 after billions in its reserves were stuck with the collapsed Silicon Valley bank.
Price Action: At the time of writing, FDUSD traded at $0.9953, down 0.28% in the last 24 hours, according to data from Benzinga Pro.
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