FDUSD Controversies Explained: Is The First Digital USD Stablecoin Safe?

Is FDUSD stablecoin safe for investors? This question has drawn significant attention amid recent controversies in the crypto market. FDUSD, issued by First Digital Trust (FDT), operates as a fiat-backed stablecoin pegged 1:1 to the US dollar.

However, a series of high-profile allegations, a temporary depeg, and rumors involving insider leaks from major exchanges have led many investors to reexamine its safety.

Understanding FDUSD and its operational model

FDUSD is designed to maintain a stable value by backing each token with short-term US Treasury Bills and cash equivalents. This collateralization means that for every FDUSD token in circulation, there exists an equivalent value in traditional financial instruments.

The issuer, First Digital Trust, ensures transparency by publishing regular attestations and reserve reports audited by independent firms. These measures align with regulatory frameworks in Hong Kong, where FDT operates under a stringent financial service regime.

The stablecoin’s main utility lies in its dual role as a trading instrument and a hedge against market volatility. Traders use FDUSD to safeguard capital, while businesses leverage its stability for international payments and settlements.

Its presence on major exchanges like Binance further reflects its liquidity and accessibility. Despite these strong fundamentals, recent events have led to critical evaluations of its reliability.

The controversy: Public accusations and market turbulence

In early April 2025, FDUSD found itself at the center of a major controversy when influential crypto entrepreneur Justin Sun publicly accused First Digital Trust of insolvency and alleged that the company could not fulfill client fund redemptions.

Sun’s statements quickly circulated across social media, prompting immediate concerns over the stablecoin’s backing and overall stability. These public allegations coincided with a rapid depeg of FDUSD from its intended $1 value.

At its lowest point, FDUSD was reported to have fallen to approximately $0.87. This deviation from its peg significantly affected investor confidence, particularly given that roughly 94% of FDUSD’s supply, valued at about $2.2billion, was traded on Binance.

The depeg underscored how susceptible stablecoins are to market sentiment and highlighted the impact that influential figures can have on investor behavior.

First Digital Trust responded to these claims by categorically denying Sun’s allegations. The company maintained that FDUSD was fully backed by its reserves and clarified that the dispute was actually related to TrueUSD (TUSD), another stablecoin. FDT accused Sun’s claims of being part of a defamatory campaign aimed at tarnishing its reputation.

Moreover, the company announced its intention to pursue legal action against Sun for defamation, an approach that underscored its commitment to transparency and accountability.

How FDUSD lost its peg and then recovered

The sudden loss of FDUSD’s peg can be primarily attributed to market panic and the rapid spread of negative information. When investors fear that a stablecoin might not be fully collateralized, they tend to rush to redeem their tokens, which exacerbates the depegging. In the case of FDUSD, the panic fueled by public allegations led to a liquidity crunch.

However, as the situation unfolded, First Digital Trust provided updated reserve reports and further attested to the stablecoin’s full backing.

As investors reassessed the available information and recognized that FDUSD remained well-collateralized, the stablecoin’s price began to realign with its $1 peg. The whole incident highlighted both the fragility and resilience inherent in the stablecoin market.

While market sentiment can drive short-term volatility, transparent collateralization and clear communication from issuers can help restore stability.

Did Binance cause the FDUSD depeg? 

Amid the FDUSD controversy, another layer of complexity emerged, with rumors suggesting that Binance may have been involved in an insider leak related to FDUSD. Some community members speculated that confidential information might have been leaked from within Binance, potentially contributing to the rapid depeg.

These allegations have fueled discussions around market manipulation and the responsibilities of large exchanges in maintaining transparency.

It is important to note that similar concerns have surfaced in the past at Binance. In previous instances, the exchange faced accusations of insider trading and market manipulation. For example, Binance suspended a staff member accused of using confidential information to front-run a token launch.

Although an investigation found no evidence of wrongdoing in that case, it has left a lasting impact on how insider trading allegations are perceived within the crypto community.

Regarding FDUSD, however, there has been no definitive evidence linking Binance to any insider leak that directly influenced the stablecoin’s price. Binance has not issued any official statements addressing these specific claims.

As such, while the rumor persists and contributes to the overall uncertainty, it remains unsubstantiated. Investors are advised to monitor official communications and regulatory updates to stay informed about any further developments.

Evaluating FDUSD’s safety for investors

Given the sequence of events, investors naturally question the safety of holding FDUSD. There are several factors to consider when assessing its risk profile:

1. Collateralization and transparency: FDUSD’s backing with short-term US Treasury Bills and cash equivalents is a key strength. The issuance of regular, independently audited attestation reports reinforces investor confidence. This collateralization mechanism has demonstrated resilience, as evidenced by the recovery from the depeg incident.
2. Regulatory oversight and legal framework: First Digital Trust operates within a regulatory framework in Hong Kong, a jurisdiction known for its strict financial oversight.
3. Market sentiment and information flow: The controversy, driven by high-profile allegations, reflects how market sentiment can influence asset stability. However, the swift recovery of FDUSD following the issuance of clear, transparent information suggests that the market values factual, timely updates over speculative rumors. Investors should remain cautious during periods of heightened market activity but also recognize that temporary depegging does not necessarily indicate systemic risk.
4. Exchange relationships and liquidity: The significant trading volume on Binance provides ample liquidity for FDUSD. Although rumors regarding insider leaks have circulated, there is no conclusive evidence to suggest that these have materially affected the stablecoin’s operations. Nonetheless, investors should continue to monitor trading platforms for any future irregularities.

Final verdict: Is FDUSD safe?

In conclusion, FDUSD demonstrates many of the core characteristics of a safe stablecoin. Its full collateralization, regular reserve attestations, and adherence to regulatory standards position it as a relatively secure option for investors seeking stability in the volatile crypto market.

The incident of depegging, though significant, resulted primarily from market panic triggered by external allegations rather than an inherent flaw in the stablecoin’s design.

Investors should, however, remain vigilant. The episode serves as a reminder of the potential volatility driven by market sentiment and external influences such as high-profile comments and unverified rumors.

While FDUSD’s quick recovery is a positive indicator, the risks associated with the broader crypto ecosystem cannot be ignored. Prospective investors should continuously monitor official communications from First Digital Trust and maintain a diversified approach to their crypto assets to mitigate risk.