FDUSD Depeg Response

[chaoslabs]

Following Justin Sun’s concerns about FDT’s solvency—which triggered FDUSD’s market price to drop to as low as $0.88 before rebounding to $0.99—Chaos Labs advised Venus to temporarily freeze the reserve.

It is currently unclear whether the allegations, if true, would affect FDUSD and/or TUSD, and thus we have recommended freezing the latter, too.

Outstanding Exposure

BNB Market

FDUSD

Currently, $26.93M FDUSD has been supplied on the protocol, with $9.99M in collateralized debt outstanding. However, all top FDUSD suppliers have also deposited other assets, resulting in well-diversified positions, such that the protocol would induce minimal liquidations under a significant depegging scenario.

TUSD

There are very limited borrows against the $120K TUSD supplied on BNB Chain ($1.5K), limiting the risk in the event of a further depeg. Borrows are also relatively limited and primarily against BTCB collateral.

Ethereum Market

FDUSD is not listed on Ethereum. However, TUSD is listed, with a relatively static supply and borrow over the past month.

Importantly, there is no capital borrowed against TUSD, resulting reducing the risk of liquidation should the asset depeg. While it is being borrowed, the value is relatively small and does not pose a risk to the protocol.

Situation Overview

TrueUSD (TUSD) relied on First Digital Trust—the same entity behind FDUSD and custodian for multiple companies—as the holding company for $500 million of its stablecoin backing. Justin Sun has now alleged that First Digital Trust is unable to meet its obligations to TUSD, effectively leaving a $500 million shortfall, which he claims to be covering personally. By making this assertion, Sun is also implying the potential insolvency of First Digital Trust as a whole, casting doubt on the solvency of FDUSD as well.

First Digital has since denied these allegations, asserting that the responsibility lies with TrueUSD. They emphasized that the stablecoin’s solvency is validated through independent attestation reports, with the most recent report—affirming full backing—dated February 28th.

Recommendation

Given the current circumstances and the exposure described above, we recommended that Venus temporarily freeze FDUSD on the BNB Core Market, as well as TUSD on both the BNB Core and Ethereum Markets.

Chaos Labs will continue to monitor the situation and implement additional market adjustments if necessary to minimize risk to the Venus protocol.

[Masala]

Thank chaos labs for your continued supervision. If there are any other issues or problems in the future, please inform Venus as soon as possible to reduce the loss of users’ assets.

[FREDY]

Hello

I have been looking into this scenario and wondering what else other than an allegation/statement from one player - even though a significant market player - were taken into consideration in order to cause this to FDUSD and the related market.

I mean what numbers, indications, evidences or anything that might corroborate the claim have been checked to be true or make sense and to be taken into account more seriously ?

First Digital had the chance to state that all the reserves of FDUSD are shown on their attestation report, and unless that can’t be validated, seems reasonable to clarify the case after an allegation.

Although these types of situations cause a lot of discomfort and distrust in the market, it is always important to be able to check in a more concrete way and with more evidences whether the claim is not just based on words and other unknown interests.

Regards

[chaoslabs]

We anticipate that there will be significant demand to borrow FDUSD in light of the upcoming Launchpool event; utilization has already increased significantly as supply has been withdrawn.

Additionally, FDUSD has regained its peg, demonstrating relatively strong stability given the recent depeg.

Given these factors, we recommend unpausing the market; we will continue to monitor the asset and anticipate a detailed attestation report to be released in the coming days, as per an announcement on Binance. Finally, we recommend unfreezing TUSD, noting that the asset did not depeg significantly.