FDUSD stablecoin depegs 9% after Justin Sun raises concerns over First Digital's solvency

Tron founder Justin Sun is warning users to pull funds from First Digital Trust, a Hong Kong-based firm once employed by TrueUSD’s owner Techteryx as a fiduciary to oversee the stablecoin’s reserves. 

"First Digital Trust (FDT) is effectively insolvent and unable to fulfill client fund redemptions," Sun posted to X on Wednesday, responding to a CoinDesk article about a lawsuit filed by Techteryx. "I strongly recommend that users take immediate action to secure their assets."

Despite previously distancing himself from the project, Tron founder Justin Sun stepped in at the time to backstop the stablecoin and prevent a potential liquidity crisis, CoinDesk reported on Wednesday. According to court documents, Techteryx’s funds were tied up in loans to resource development projects in emerging markets, which the company could not redeem. 

After acquiring TrueUSD from its initial issuer TrueCoin in December 2020, Techteryx appointed Hong Kong fiduciary First Digital Trust to manage the stablecoin reserves, which were then partially diverted into Aria Commodity Finance Fund. However, instead of investing in the Cayman Islands-registered Aria Commodity Finance Fund, nearly half a billion dollars of TrueUSD reserves ended up in a separate, unauthorized entity based in Dubai called Aria Commodities DMCC. These funds were then invested in illiquid global projects like mining operations and renewable energy ventures.

"There are significant loopholes in both the trust licensing process in Hong Kong and the internal risk management of its financial system," Sun said on X. "I urge regulators and law enforcement to take swift action to address these issues and prevent further major losses."

No redemptions 

Court documents alleged that Aria CFF defaulted on payments and failed to meet redemptions between mid-2022 and early 2023 when Techteryx attempted to cash out its investments. Around this time, Sun stepped in to provide emergency funding through a loan.

Additionally, Techteryx claims that First Digital CEO Vincent Chok directed $15.5 million in undisclosed commissions to an entity called "Glass Door" and structured a separate $15 million in unauthorized loans to Aria DMCC that were mischaracterized as "legitimate investments." Techteryx described these actions as "blatant misappropriation and money laundering."

Chok, for his part, denied any wrongdoing, telling CoinDesk that First Digital acted solely as a fiduciary intermediary following Techteryx’s instructions. He argued Aria’s reluctance to release funds stemmed from anti-money laundering concerns tied to Techteryx’s ownership structure. Aria Group head Matthew Brittain also rejected Techteryx’s claims.

According to Brittain, Techteryx’s investment terms were clearly outlined beforehand. Moreover, Aria Commodity Finance Fund was never marketed as suitable for a stablecoin’s reserves. Aria CFF finances commodity traders, including ARIA DMCC, which itself engages in trade finance, asset development, and commodity trading. Neither firm is considered liquid. 

In September, the initial backers of TUSD, TrueCoin and TrustToken settled with the SEC over allegations of falsely marketing TrueUSD as a fully dollar-backed asset while secretly investing reserves in risky offshore funds. The firms did not admit wrongdoing but did disgorge over $500,000 in profits and paid a civil penalty. 

Sun said he would reveal more information regarding Techteryx’s lawsuit in a press conference on Thursday.

"Hong Kong’s reputation as a global financial center is at stake, and similar financial fraud incidents must never happen again," he said. 

Editor's note (April 2 — 12:50 p.m. ET): Adds First Digital's response.