FDUSD Crisis: Another Trust Test in the Stablecoin Market
Introduction
On April 3, 2025, the cryptocurrency market once again stirred up waves due to a stablecoin. This time, the protagonist was FDUSD (First Digital USD), a US dollar-pegged stablecoin issued by First Digital Trust (FDT), a Hong Kong trust company. Explosive allegations by Tron founder Justin Sun pushed FDUSD into the spotlight, causing its price to briefly drop to $0.87 and triggering market panic.
Is this a deliberate smear campaign, or an exposure of deep-seated issues in the stablecoin industry? Let’s start from the beginning to unravel this crisis and take the opportunity to understand the operating principles of stablecoins.
What is a stablecoin?
Before delving into the event, let’s talk about what stablecoins are. Stablecoins are a type of cryptocurrency designed to maintain price stability, usually pegged 1:1 to fiat currencies such as the dollar. They act as a ‘bridge’ in the blockchain world, allowing users to hold ‘stable’ assets in the volatile crypto market for trading, payments, or hedging purposes.
The stability of stablecoins is usually achieved in the following ways:
- Asset-backed: The issuer holds an equivalent amount of fiat currency or assets (such as USD, government bonds) as reserves, which users can redeem at any time. For example, USDT (Tether) and USDC (Circle) are representatives of this category.
- Algorithmic: Stabilizing price by adjusting the supply through smart contracts, like early TerraUSD (UST), however, such stablecoins bear higher risks, the UST crash in 2022 serves as a lesson.
- Mixed type: combining asset support and algorithmic adjustment, less common.
FDUSD belongs to the first type, which is promised by FDT to be backed 1:1 by US dollars or equivalent assets (such as US Treasury bonds). However, the ‘stability’ of stablecoins is not inherently natural, but is built on the issuer’s reputation and reserve transparency. Once trust is shaken, depegging may occur - which is exactly what FDUSD is experiencing.
Background of the Event: Controversy from TUSD to FDUSD
FDUSD was launched in June 2023, backed by Hong Kong’s FDT, quickly rising to the top four in the stablecoin market with a market capitalization of about $3.3 billion. However, FDT is not without controversy, as it also manages another stablecoin, TUSD (TrueUSD), which has faced continuous troubles in recent years.
From 2023 to early 2024, TUSD frequently made headlines due to reserve management issues. Court documents in Hong Kong revealed that TUSD issuer Techteryx faced a $456 million funding gap because FDT invested reserves in high-risk assets, leading to delayed redemptions. Tron founder Justin Sun provided emergency loans to assist TUSD, but relations with FDT deteriorated thereafter. This grudge sowed the seeds of today’s FDUSD crisis.
From accusations to market turmoil
On April 2, 2025, Justin Sun dropped a bomb on X platform: ‘First Digital Trust is insolvent and unable to fulfill customer redemption obligations.’ He claimed that FDT was involved in a fraud of up to $500 million, and trust regulation in Hong Kong was virtually non-existent, calling for user withdrawals and regulatory intervention. Sun also announced a press conference on April 3 to reveal more evidence.
This accusation directly targets the lifeline of FDUSD - if FDT really goes bankrupt, are the USD reserves of FDUSD safe? The market quickly plunged into panic.
FDUSD decoupling and sell-off
After the announcement, the price of FDUSD quickly decoupled. On April 2, it dropped to as low as $0.87 (compared to USDT), and even briefly touched $0.76 (compared to USDC), with a decline of up to 12%-24%. The 24-hour trading volume surged to $5.9 billion, with many users selling FDUSD to avoid risks.
FDT counterattack
In the face of crisis, FDT quickly issued a statement on the evening of April 2: ‘The allegations against Justin Sun are purely rumors, unrelated to FDUSD, only involving TUSD. We have full solvency, with the 20.4 billion circulation of FDUSD backed by assets such as 20 billion US Treasury bonds.’ They accuse Sun of spreading FUD (fear, uncertainty, and doubt) and announce legal action, while planning to hold an AMA at X Spaces on April 3 at 16:00 (Hong Kong time) for public clarification.
Why are stablecoins prone to ‘destabilization’?
The decoupling of FDUSD is not an isolated case. In 2022, TerraUSD went to zero due to algorithm failure, and in 2023, USDC briefly dropped to 0.88 USD due to the Silicon Valley bank crisis. Common reasons for stablecoin instability include:
- Insufficient reserves or lack of transparency: the issuer does not hold sufficient assets, or invests in high-risk products.
- Market panic: a run causing a selling wave, even if reserves are replenished, it may not be enough to respond in time.
- Lack of regulation: Many stablecoin issuers operate outside traditional financial regulation, relying solely on self-disclosure for trust.
In the FDUSD incident, Sun’s accusations directly hit the foundation of trust, and whether FDT can prove its innocence will determine its fate.
Future Outlook of FDUSD
Short term: FDT’s AMA and Sun’s press conference will be crucial. If FDT can demonstrate transparent reserves, FDUSD may return to 1 USD; if Sun presents concrete evidence, it may trigger a bigger crisis. Long term: Regulatory tightening on stablecoins in Hong Kong may change the industry competition landscape due to the success or failure of FDUSD. USDT, USDC, and even USDD may benefit from it.
The FDUSD crisis is another epitome of trust and risk in the stablecoin market. Technically, stablecoins are the cornerstone of the blockchain economy; but in reality, their stability depends on the game between human nature and regulation.
