First Digital has redeemed almost $26 million in stablecoin withdrawals after its FDUSD token briefly lost its US dollar peg

First Digital has redeemed almost $26 million in stablecoin withdrawals after its FDUSD token briefly lost its US dollar peg

First Digital has redeemed almost $26 million in stablecoin withdrawals after its FDUSD token briefly lost its US dollar peg following allegations of insolvency by Tron founder Justin Sun.

On April 2, First Digital USD (FDUSD) depegged and fell as low as $0.87 after Sun claimed that First Digital was insolvent.

However, on April 4, First Digital stated that it is solvent and that FDUSD remains fully backed and redeemable.

“Techteryx's own failures are evident—but we stand firm. First Digital is solvent & $FDUSD remains fully backed & redeemable,” said First Digital.

First Digital’s claims come after Sun alleged that the firm transferred over $450 million of customer funds to a Dubai-based entity and that it violated Hong Kong securities regulations.

"Since 2023, FDT has been operating without a valid Hong Kong license and has repeatedly violated Hong Kong securities regulations in its token offerings, and it has not yet returned the money to its custodial clients," alleged Sun.

"FDT transferred $456 million of its custodial clients to a private company in Dubai without their authorization and has not yet returned the money. These actions have directly affected the interests of numerous crypto users."

According to blockchain data from Etherscan, First Digital has honored approximately $25.8 million in FDUSD redemptions since the incident.

When users redeem FDUSD for US dollars, the corresponding amount of FDUSD is burned onchain for the stablecoin to maintain a 1-to-1 peg with the US dollar and ensure the circulating supply matches reserves.

After FDUSD depegged, Wintermute has also reportedly been actively arbitraging the depeg and has already transferred over 75 million FDUSD since the depegs began, in an arbitrage opportunity of over $3 million.

Stablecoin depegs 'greater systemic risk' than Bitcoin crash

Stablecoins depegs pose “a greater systemic risk” to crypto than a Bitcoin (BTC) crash, as “stablecoins are integral to liquidity, DeFi and user trust,” according to Bitget CEO Gracy Chen.

Stablecoin depegs can cause “cascading failures like the TerraUSD collapse in 2022,” Chen told Cointelegraph, adding:

In May 2022, the $40 billion Terra ecosystem collapsed, erasing tens of billions of dollars of value in days. Terra’s algorithmic stablecoin, TerraUSD (UST), had yielded an over 20% APY on Anchor Protocol before its collapse.

As UST lost its dollar peg, crashing to a low of around $0.30, Terraform Labs co-founder Do Kwon took to X (then Twitter) to share his rescue plan. At the same time, the value of sister token LUNA — once a top 10 crypto project by market capitalization — plunged over 98% to $0.84. LUNA was trading north of $120 in early April 2022.