April 8, 2025
By Anjali Kochhar
In a development that has sent shockwaves through the cryptocurrency industry, Justin Sun, the founder of the Tron blockchain, has initiated legal action against First Digital Trust (FDT), the Hong Kong-based issuer of the FDUSD stablecoin. Sun alleges that FDT has embezzled approximately $500 million in client funds, a claim that has raised significant concerns about the stability and transparency of digital asset custodians.
On April 3, 2025, Sun announced via a post on X (formerly known as Twitter) that he had met with Hong Kong legislator Johnny Wu to report the alleged embezzlement. He stated that he had submitted relevant materials to local regulators and judicial authorities, emphasising the severity of the situation. Sun described the incident as “a major international financial fraud involving traditional financial institutions and web3 platforms,” highlighting potential vulnerabilities within the trust industry.
In response to Sun’s allegations, First Digital Trust issued a statement vehemently denying the claims. The company asserted its solvency and the security of its reserves, stating that “every dollar backing FDUSD is completely secure, safe, and accounted for with US-backed T-Bills.” FDT further accused Sun of orchestrating a smear campaign to undermine a competitor, declaring its intention to “pursue legal action to protect its rights and reputation.”
The controversy has had immediate repercussions on the FDUSD stablecoin, which experienced a deviation from its $1 peg amid growing investor concerns. The token’s value dropped to 0.87 against Tether’s USDT and 0.76 against Circle’s USDC on Binance before stabilising around $0.98. This fluctuation underscores the fragility of stablecoin pegs in the face of institutional controversies.
This legal battle emerges against the backdrop of Sun’s own regulatory challenges. In March 2023, the U.S. Securities and Exchange Commission (SEC) charged Sun and his companies Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. with the unregistered offer and sale of crypto asset securities, as well as fraudulent manipulation of the secondary market for TRX through extensive wash trading. The SEC also alleged that Sun orchestrated a scheme to pay celebrities to promote TRX and BTT without disclosing their compensation.
The unfolding dispute between Sun and FDT has ignited discussions about the necessity for enhanced transparency and regulatory oversight in the stablecoin ecosystem. Vikram Subburaj, CEO of Giottus Crypto Platform, remarked, “The reported legal action by Justin Sun against First Digital Trust over alleged embezzlement of $500 million raises important questions about governance and custodianship in the stablecoin ecosystem. While the facts are still unfolding, this case underscores the need for greater transparency and robust regulatory frameworks for entities issuing or backing digital assets. For investors, it is a reminder to prioritise due diligence not only on the tokens they hold but also on the institutions behind them. At Giottus, we continue to advocate for compliance, credibility, and investor protection as essential pillars of a maturing crypto ecosystem.”
Similarly, Dennis Kelleher, CEO of Better Markets, a group that advocates for stronger financial oversight, commented on Sun’s investment decisions, suggesting they appear to be attempts to curry favor with influential figures. He noted, “But this is a very serious lawsuit. The allegations are not something that even the new chair of the SEC is going to lightly dismiss.”
The allegations against FDT and the subsequent legal actions have significant implications for the cryptocurrency industry, particularly concerning the trust and reliability of stablecoin issuers. Stablecoins are designed to provide a stable store of value in the volatile crypto market, often pegged to traditional assets like the US dollar. However, incidents like these highlight potential risks associated with their issuance and management.
Investors are advised to exercise heightened due diligence, not only regarding the digital assets they hold but also concerning the institutions that issue and back these assets. The current situation serves as a stark reminder of the importance of transparency, regulatory compliance, and robust custodial practices in safeguarding investor interests.
The unfolding legal battle between Justin Sun and First Digital Trust marks a crucial moment in the crypto industry’s evolution. More than a financial dispute, it reflects deeper concerns around custodianship, transparency, and accountability in the stablecoin space. Questions raised by this case will likely influence how digital assets are issued, managed, and regulated moving forward.
Crypto users, investors, and institutions must treat this as a wake-up call reminding everyone to look beyond token prices and consider the credibility of the platforms and people behind them. Stronger frameworks and better governance aren’t just ideal they’re essential for building long-term trust in digital finance.
About the author
Anjali Kochhar covers cryptocurrency and blockchain stories in India as well as globally. Having been in the field of media and journalism for over four years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.
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