The First Digital US dollar-pegged stablecoin (FDUSD) depegged on April 2 following claims of insolvency from Tron network founder Justin Sun, who said that the issuer of the tokenized fiat equivalent, First Digital, is insolvent.
First Digital responded to the claims by assuring users they are completely solvent and said that FDUSD is still fully backed and redeemable with the US dollar on a 1:1 basis.
The firm also said that the ongoing dispute is with TrueUSD (TUSD), another stablecoin. The firm wrote in an April 2 X post:
“Every dollar backing FDUSD is completely secure, safe, and accounted for with US-backed Treasury Bills. The exact ISIN numbers of all of the reserves of FDUSD are set out in our attestation report and clearly accounted for.”
First Digital also indicated they would be taking legal action against Sun for making the claims on social media. “This is a typical Justin Sun smear campaign to try to attack a competitor to his business,” spokespeople for First Digital wrote.
Proof of reserves: the answer to FUD, runs on the bank, and depegging?
Proof-of-reserve audits are on-chain cryptographic verifications that a custodian, crypto firm, or stablecoin issuer has the digital assets it claims to hold.
These proof-of-reserve audits use zero-knowledge tech and Merkle Trees — a data structure used to verify on-chain information — as an alternative to audit reports or attestations widely used in the crypto industry.
Despite proof-of-reserve technology not yet tracking liabilities against reserves, the system promises to be better than the current system of audits that do not use real-time, on-chain data.
Tal Zackon, founder of the Tres Finance auditing and reporting platform, previously told Cointelegraph that current attestations and third-party audit reports only represent “snapshots” of reserves that can be manipulated, exploited, or misconstrued.
Stablecoin issuers will likely need to adopt proof-of-reserve tools as the tokenized fiat equivalents become more integrated into global capital markets and critical financial infrastructure such as stock exchanges, escrow services, and clearinghouses.
This integration will require stablecoin issuers to provide up-to-date, real-time data, which may need to be updated several times per minute as opposed to the monthly audit reports that are typically released by firms to attest to asset reserves.