First Digital vs. Justin Sun: FDUSD Drops to $0.76 in Stablecoin Market Crash as Legal Battle Heats Up

The stablecoin market crash deepened as FDUSD, issued by First Digital, lost its $1 peg following insolvency allegations from Tron founder Justin Sun. The token dropped as low as $0.76 against USDC before stabilizing around $0.98. First Digital denied the claims by saying that FDUSD is fully backed by U.S. Treasury bills. The company announced legal action against Sun for spreading misinformation.

Investor Panic as FDUSD Faces Extreme Volatility

The stablecoin market crash saw FDUSD’s price fluctuate sharply, raising investor concerns. Reports suggested that TrueUSD (TUSD), another stablecoin, had illiquid reserves. First Digital Trust (FDT), which manages TUSD reserves, was accused of insolvency by Sun. However, First Digital refuted these claims, emphasizing that FDUSD’s reserves are securely held in U.S. Treasury Bills.

Chart 1-  FDUSD-USDC trading pair, published on TradingView, April 3, 2025.

FDUSD dropped to $0.87 against Tether’s USDT and $0.76 against Circle’s USDC, the primary exchange listing the token. Bitcoin (BTC) also surged close to $100,000 against FDUSD, indicating instability. The token later rebounded to around $0.98–$0.96, still below its intended peg.

Legal Showdown: First Digital Takes Action Against Sun

First Digital labeled Sun’s allegations as a “smear campaign” aimed at damaging FDUSD’s market position and announced plans for legal action. Despite this, FDUSD remains under scrutiny, struggling to regain full stability. The situation has intensified discussions about stablecoin regulations and reserve security.

The controversy highlights the need for improved crypto reserve audit methods. Critics argue that stablecoin issuers must adopt on-chain proof-of-reserve mechanisms to improve transparency. These systems use cryptographic verification to provide real-time data, potentially preventing liquidity crises like FDUSD’s depegging.

The recent allegations by Justin Sun against First Digital Trust are completely false.

This dispute is with TUSD and not with $FDUSD. First Digital is completely solvent.

Every dollar backing $FDUSD is completely, secure, safe and accounted for with US backed T-Bills. The…

— First Digital (@FirstDigitalHQ) April 2, 2025

In X (formerly Twitter), First Digital posted that every dollar backing FDUSD is accounted for in U.S.-backed Treasury Bills. The post emphasized the company’s financial stability and accused Sun of spreading false information to manipulate the market. First Digital reassured users that FDUSD remains redeemable at a 1:1 ratio with the U.S. dollar. The First Digital stability has been questioned, but the firm remains confident in its reserves.

What’s Next for FDUSD and the Stablecoin Industry?

The stablecoin market crash has highlighted the importance of trust and transparency in digital assets. Industry players believe improved auditing and regulation are needed to avoid future instability. FDUSD’s latest reserve report revealed that $2 billion in backing is primarily in U.S. Treasury Bills, but concerns remain about liquidity in crises. Some analysts suggest that stablecoin issuers should implement independent third-party audits for credibility.

As the crypto market community reacts, investors will closely monitor FDUSD’s performance. However, the legal battle with Sun could further impact the crypto market, adding uncertainty about stablecoins’ long-term reliability. Increased regulatory scrutiny may follow, leading to tighter stablecoin policies.

The First Digital stability debate continues, with experts calling for more proof of reserves to ensure investor trust. The case raises general concerns regarding stablecoins’ liquidity and transparency, particularly during times of financial distress. 

Final Thoughts: Can FDUSD Recover from the Crash?

The stablecoin market crash triggered by insolvency rumors has placed FDUSD under intense scrutiny. First Digital insists on its solvency, but investor confidence remains uncertain. The crypto market is likely to push for stricter crypto reserve audit measures to prevent future crises. FDUSD’s fate depends on restoring trust and maintaining its peg amid market volatility.

Despite concerns, First Digital stability could improve with greater transparency and regulatory compliance. If First Digital can demonstrate that its reserves are bankruptcy-proof, it may regain trust and stabilize the price of the FDUSD.