First Digital's stablecoin FDUSD has regained its dollar peg after allegations by blockchain entrepreneur Justin Sun briefly knocked $130 million off its value, raising questions about stability in a market expecting dozens of new entrants from companies including Stripe and Fidelity.
What to Know:
- First Digital's FDUSD briefly lost 9% of its value after unsubstantiated insolvency allegations from Tron founder Justin Sun
- The stablecoin market is dominated by Tether ($143 billion) and Circle ($59 billion), with First Digital a distant third at $2.5 billion
- Industry settlements reached $2 trillion in 2024, exceeding Visa's volume, as stablecoins gain traction in payments and emerging markets
The incident highlights growing pains in what industry insiders call a coming "stablecoin summer," where cryptocurrency tokens pegged to traditional currencies are simultaneously functioning as payment tools, capital market funds, and bank-like deposits.
First Digital's ability to weather the crisis demonstrates the resilience of larger operators, but questions remain about how smaller competitors will fare in a fragmenting market.
The dispute began April 3 when Sun tweeted claims that Hong Kong-based First Digital was insolvent and unable to fulfill client redemptions. Though he presented no evidence, the accusations temporarily knocked FDUSD off its one-to-one dollar peg. This raised concerns for Binance, the world's largest crypto exchange, which holds more than $2 billion of customer deposits in FDUSD.
First Digital founder Vincent Chok quickly countered with statements affirming the company's reserves were fully funded and launched countersuits against Sun. The company has since fulfilled all redemption requests, stabilizing the token's price.
The allegations involve complex relationships between Sun, an investment vehicle called Techteryx, another stablecoin called TrueUSD, and Cayman-based commodity futures funds that may be managing First Digital assets. First Digital denies any improper handling of funds, while Sun has denied ownership of Techteryx. Sun has also claimed, without evidence, that First Digital exploits loopholes in Hong Kong's trust licensing process.
Market Dominance and Business Models
The stablecoin landscape reveals dramatic disparities in market share. Tether's USDT leads with a $143 billion market cap, followed by Circle's USDC at $59 billion, both tracking the U.S. dollar. First Digital ranks third at $2.5 billion, while PayPal's stablecoin registers $787 million. The figures drop precipitously from there.
In an interview before the controversy, Chok described First Digital's strategy to differentiate itself in this concentrated market. "We can mitigate these risks by suggesting governments partner with us so we can figure it out together," Chok told DigFin, referring to potential collaborations with regional regulators.
First Digital emerged from Legacy Trust, a company that held crypto reserves for blockchain firms. The stablecoin launched in 2023 within a Hong Kong Monetary Authority sandbox, after interest rates climbed and crypto yields plummeted.
The business model relies on interest earned from reserve assets held in U.S. Treasuries.
Chok claims the operation remains profitable even if U.S. Federal Reserve rates fall below 3.5%, currently at 4.25-4.5%. Potential inflation resulting from tariff policies could force rate increases, benefiting stablecoin operators who effectively bank free money above certain thresholds.
Emerging Markets and Payment Systems
First Digital's growth strategy focuses on fragmented payment systems in emerging markets. While Southeast Asian governments work on bilateral agreements between digital wallet systems like Hong Kong's Octopus and Malaysia's Touch'n'Go, Chok envisions dollar-based stablecoins as a unifying solution.
Stablecoin transactions often undercut fees from traditional payment networks like Visa and Mastercard. This cost advantage could particularly benefit businesses handling remittances. Rather than creating local currency stablecoins, First Digital aims to help regional regulators develop licensing frameworks that won't undermine demand for their national currencies.
The benefits extend beyond payments. "Traditional fintech's promise of banking swathes of Asia's poor hasn't come true," Chok noted. Banks still avoid customers they deem unprofitable to serve, while regulators balance financial inclusion against risks of scams and investor protection concerns.
FDUSD has secured listings on eight crypto exchanges and four decentralized finance platforms. Its most significant partnership is with Binance, which embraced FDUSD after regulatory problems hobbled its native stablecoin.
First Digital has recently expanded to blockchain networks including Sui and Solana, providing incentives to market makers.
First Digital was pursuing a $50 million Series B funding round when the controversy erupted. The funds would support treasury operations, market-making incentives, and new offices in markets where it seeks licenses – not just in Asia but also in Canada, the UAE and European Union.
Regulatory Considerations
The dispute raises important regulatory questions. While First Digital has met redemptions and issued attestations of its reserves, regulators might consider whether attestations provide sufficient transparency compared to comprehensive audits that examine processes and procedures.
Authorities must determine minimum size requirements and standards for licensing as the market fragments.
The Sun-First Digital dispute demonstrated how quickly even the third-largest fiat-backed stablecoin could face liquidity pressures. Best practices must be established to prevent potential banking runs and currency crises.
Finally, regulators should explore creative applications of stablecoins to enhance financial access and strengthen local bond and currency markets. As instruments that function as both payment tools and capital vehicles, stablecoins present both risks and opportunities for financial innovation.
Final Thoughts
The First Digital controversy illuminates the challenges facing the growing stablecoin industry as it attracts both corporate giants and entrepreneurs. While the immediate crisis has passed, questions remain about market stability, regulatory frameworks, and business viability as dozens of new entrants prepare to launch their own digital dollars.