A stablecoin called First Digital USD (FDUSD) lost its dollar peg on Wednesday after Tron founder Justin Sun claimed that its issuer, First Digital Trust, is effectively insolvent.

The Hong Kong-based firm is currently “unable to fulfill client fund redemptions," Sun warned in a post on X, formerly known as Twitter, urging “regulators and law enforcement to take swift action to address these issues and prevent further major losses.”

First Digital Trust denied the allegation, saying on X that its stablecoin worth $2.5 billion is backed one-to-one with U.S. Treasuries. The firm described Sun’s rhetoric as part of a “smear campaign,” adding that it will pursue legal action to protect its rights and reputation.

FDUSD—which is prominently used by top crypto exchange Binance after it dropped support for BUSD in 2023—plunged as low as $0.95 and was recently changing hands around $0.96, according to the crypto data provider CoinGecko. It had recovered to $0.97 before Sun doubled down.

Sun said on X that First Digital Trust’s insolvency is a “factual statement,” urging the company’s business partners to sever ties “as soon as possible to protect your assets.”

The crypto billionaire recently helped a firm called Techteryx avoid insolvency, CoinDesk reported on Wednesday, citing Hong Kong court documents.

The company, which acquired the stablecoin TrueUSD in 2020, reportedly needed a $456 million bailout from Sun after its reserves were allegedly misappropriated by First Digital Trust.

First Digital Trust manages TrueUSD’s reserves, and the company diverted cash to a Dubai-based entity instead of an investment vehicle registered in the Cayman Islands, the publication reported, citing court documents prepared by U.S. law firm Cahill Gordon & Reindel.

When Techteryx tried to redeem funds between mid-2022 and early 2023, the company received “little or no funds back” from the Cayman Islands-based fund, and it allegedly defaulted on payments and failed to fulfill redemption requests, according to the court documents.

First Digital Trust has not had the chance to defend itself in court, the firm noted on X.

Despite its small market cap, the disruption centered around FDUSD is “a big deal,“ Coinbase's Head of Product, Conor Grogan, said on X Wednesday. Historically, the stablecoin has been popular among traders on Binance, with the exchange holding 94% of FDUSD in circulation.

Edited by Andrew Hayward