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.

First Digital USD (FDUSD) depegged on April 2, briefly falling as low as $0.87 after Sun claimed that First Digital was insolvent.

On April 4, Sun doubled down on his allegations, claiming the firm transferred over $450 million of customer funds to a Dubai-based entity and that it violated Hong Kong securities regulations.

Source: H.E. Justin 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,” Sun claimed.

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

FDUSD redemptions. Source: Etherscan 

“We continue to process redemptions smoothly, demonstrating the fortitude of $FDUSD,” noted First Digital in an April 3 X post.

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.

Related: Wintermute transfers $75M FDUSD since depegs, in $3M arbitrage opportunity

Following Sun’s claims, First Digital assured users that it is solvent and that FDUSD remains fully backed and redeemable.

Source: First Digital

“First Digital stands firm: Justin Sun’s baseless accusations won’t distract from Techteryx’s own failures— our stablecoin FDUSD remains fully backed and solvent,” First Digital stated in an April 3 X post.

Related: Bitcoin price can hit $250K in 2025 if Fed shifts to QE: Arthur Hayes

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 Gracy Chen, CEO of Bitget.

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

“Current transparency, collateral quality and accountability among leading stablecoin issuers are insufficient — Tether’s lack of full audits, USDC’s exposure to banking risks and algorithmic stablecoins’ fragility highlight the market’s vulnerability to the next depeg event.”

“To mitigate risks, the market should enforce real-time audits, prioritize high-quality collateral like US Treasurys, strengthen regulatory oversight and diversify stablecoin usage to reduce reliance on a few dominant players,” Chen added.

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% annual percentage yield (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.

Magazine: Financial nihilism in crypto is over — It’s time to dream big again