David Canellis

There’s nearly half a billion dollars in TrueUSD circulating through the crypto ecosystem right now. And if what the Securities and Exchange Commission alleges is true, practically none of it is properly backed.



That includes <a href="https://www.coingecko.com/en/coins/true-usd">pairs</a> on Binance, Bybit, Gate.io and Bitget, along with dozens of other exchanges.



We learned a lot about the alleged inner workings of TrueUSD overnight. It apparently speed-ran the gauntlet of everything you shouldn’t do when managing a stablecoin.



Phony attestation reports. Opaque ownership structures. Secretly investing the assets backing the token in risky, illiquid assets.&nbsp;



All of this is “alleged” because we’re again left with an ambiguous SEC settlement that neither confirmed nor denied the charges. Very helpful, much investor protection.



Read more: <a href="https://blockworks.co/news/sec-settlement-trusttoken-truecoin">TrustToken, TrueCoin settle with SEC over TUSD allegations</a>



Regardless, what’s entirely frustrating is that going by the timeline laid out in the SEC’s <a href="https://www.sec.gov/files/litigation/complaints/2024/comp-pr2024-145.pdf">complaint</a>, the showrunners behind TrueUSD had (allegedly) been fooling around with customer deposits behind their backs at every one of the coin’s major milestones.



What the SEC calls the “commodity fund” — which (allegedly) took dollars that had been sent to TrueUSD bank accounts in return for TUSD — starting in March 2020 (allegedly) invested in “trade finance, structured trade, export finance, import finance, supply chain financing and project financing of entities.”&nbsp;



At the same time, the team (allegedly) claimed over and over that every TUSD was backed 1-to-1 with US dollars, or at other times, cash and cash equivalents.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXf3xEAQS4wo5KTvnJoFzsISG47OHwJIVI3fcbJZDgqphr8jTLW2cRur23Cjpc4z4lJAoi9dbVxO0wX-x_g5zdF5tLuspCg7K7B7LsWk4y-t7Xm_7DakEElYKZotz7XHpoQiga71HQkCvxEJ0nDE3c-Tzq-B?key=1zUy2y7E0JYqX7SDctA1sA" alt=""/><figcaption class="wp-element-caption">FDUSD, which was a former treasury custodian for TrueUSD, is now Binance’s <a href="https://blockworks.co/news/binance-fdusd-busd">stablecoin</a> of choice</figcaption></figure>



In (alleged) reality, the “commodity fund” was ramping up its allocations (read: siphoning of user funds), to the point that 99% of the assets backing TUSD as of this month were really sitting in the illiquid commodity fund. The period of time in which the fund has been (allegedly) active is shown on the chart above by the red shaded area.



In August 2021, a16z, BlockTower and the ill-fated Alameda Research together <a href="https://www.coindesk.com/markets/2021/08/04/a16z-blocktower-alameda-back-125m-round-for-trusttoken/">invested</a> $12.5 million in the firm’s governance token, TRU, about 18 months after the commodity fund (allegedly) started misappropriating user funds.



Binance.US <a href="https://support.binance.us/hc/en-us/articles/9774195986839-Binance-US-Lists-True-USD-TUSD-Buy-Trade-Now">listed</a> TrueUSD just over a year after that. Four months later, the flagship global Binance exchange <a href="https://twitter.com/binance/status/1636725009610571776?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1636725009610571776%7Ctwgr%5Ea8c856373ed0377e261de5de20c7e1b432eb9176%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcointelegraph.com%2Fnews%2Fbinance-replaces-busd-in-safu-fund-with-tusd-usdt">replaced</a> its beleaguered branded stablecoin BUSD with TUSD and USDT in its “SAFU” fund, which was meant to safeguard user assets against losses.



Read more: <a href="https://blockworks.co/news/tusd-drop-below-dollar">TUSD stability questioned as value dips below one dollar</a>



Shortly after that, in March 2023, Binance <a href="https://www.binance.com/en/support/announcement/updates-on-zero-fee-bitcoin-trading-busd-zero-maker-fee-promotion-be13a645cca643d28eab5b9b34f2dc36">made</a> it so TUSD was the only stablecoin with fee-free trading — leading to another $1.5 billion in TUSD mints over the next few months. If what the SEC says is true, at no point were all those tokens fully backed, or easily redeemable.



Of course, legitimate stablecoin issuers also invest the cash meant to back their tokens in external vehicles, although it’s usually in <a href="https://blockworks.co/news/tether-profits-versus-blackrock">short-dated US Treasurys</a>, which are super liquid and considered cash equivalents. That’s the stablecoin business model, as popularized by Tether, Paxos, Circle and even MakerDAO, now Sky.



Parts of the crypto space, including <a href="https://www.fxstreet.com/cryptocurrencies/news/traders-skeptical-about-trueusd-despite-tusd-nearing-usdt-in-bitcoin-trading-volume-on-binance-exchange-202304150036">traders</a> and media <a href="https://protos.com/whats-up-with-trueusd-and-the-rest-of-trusttokens-stablecoins/">outlets</a>, were apparently right to be skeptical of TrueUSD. The (alleged) secret misappropriation of user funds was avoidable and unnecessary, even if (allegedly) ongoing.



It’s also true that the bad actors of the 2018 and 2021 market cycles are mostly dealt with, or will be sometime soon.



What’s uncomfortable is that instances of totally overt fraud could become increasingly rare over the coming years. Massive prison sentences and <a href="https://blockworks.co/news/state-department-bounty-for-onecoin-crypto-queen">international manhunts</a> are generally great deterrents.



Major cases like FTX, Alameda, Three Arrows, Terra and Celsius make for easy scapegoats after the fact. Same with the basic investment fraudsters that regularly get pinged by the SEC for their crypto-related crimes.



It’s the low hanging fruit that’s been tidied up. But crypto has agency. Radical transparency — both on and off-chain — can make a lasting impact on what the industry looks like moving forward, as long as we can drop the gimmicky attestations and other similarly flimsy proofs.



For all the SEC’s faults, it took a US regulatory agency to come in and show just how (allegedly) bad things were behind the scenes.&nbsp;



My prescription: The bigger, more popular and widespread the project, the more scrutiny must be applied. Continuously so. Demand it. Or else crypto will, ironically, be forever stuck waiting for the SEC to clean up these kinds of messes in its stead.



A modified version of this article first appeared in the daily Empire newsletter. Subscribe <a href="https://blockworks.co/newsletter/empire">here</a> so you don’t miss tomorrow’s edition.



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Transparency isn’t a gimmick — it’s crypto’s most valuable asset

Katherine Ross

Today, enjoy the Empire newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



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<h2 class="wp-block-heading">And that’s that</h2>



Former Alameda CEO Caroline Ellison was sentenced yesterday to 24 months in prison, ordered to forfeit $11 billion, and will face an additional three years of supervised release.



It’s not nothing, which is what <a href="https://blockworks.co/news/caroline-ellison-sentenced-to-24-months">Polymarket bettors</a> favored going into the sentencing yesterday afternoon, but it’s arguably very light for a multi-billion dollar fraud scheme. She was facing a maximum of 110 years.



Somewhat ironically, former FTX CEO Sam Bankman-Fried and Ellison actually had the same guideline sentences, which are calculated via a formula and intended to help inform judge’s decisions.&nbsp;



“I thought that was absurd,” Judge Lewis Kaplan said during the sentencing. “It was absurd [during Bankman-Fried’s sentencing] and it’s absurd here.”&nbsp;



Plus, Kaplan said, Ellison did display what he believes to be genuine remorse unlike her former boss.&nbsp;



“He’s sorry the gamble didn’t work out, and he’s really sorry he got caught,” Kaplan said of SBF.&nbsp;



Though it’s only fair to point out just how much Ellison helped the prosecution going into the trial last November, which prosecutors called “extraordinary” ahead of Kaplan’s decision.&nbsp;



Lead prosecutor Danielle Sassoon, who you may remember from our <a href="https://blockworks.co/news/sam-bankman-fried-trial-day-15">reporting on the FTX trial</a>, said Ellison’s testimony was “important” in convicting Bankman-Fried, who’s now sharing a common room with Diddy in his New York jail, if <a href="https://fortune.com/crypto/2024/09/24/sean-diddy-combs-bankman-fried-brooklyn-jail/">reports</a> are to be believed.&nbsp;



Kaplan, while singing some praises during the hearing, noted that he couldn’t hand over a “get out of jail free” card for her cooperation.



According to our own Casey Wagner, who was in court, he also delivered quite the zinger, telling Ellison: “You’re a very strong person, Ms. Ellison, in a lot of ways … It’s hard for me to understand [Bankman-Fried’s hold on you].”&nbsp;&nbsp;



Not to insert myself here, but if a judge — or anyone — ever made that comment about an ex, I would be forever embarrassed.&nbsp;



Ellison, however, didn’t have a visible reaction when receiving her sentence, Wagner told us. She did cry delivering her personal statement to the court.&nbsp;



Not everyone was thrilled about her sentencing.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Quick reminder that between SBF and Caroline, only one of them ever directly asked me to make a political contribution and it was Caroline&#8230;&mdash; Ryan Salame (@rsalame7926) <a href="https://twitter.com/rsalame7926/status/1838670412693086328?ref_src=twsrc%5Etfw">September 24, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Former FTX executive Ryan Salame, <a href="https://blockworks.co/news/former-ftx-exec-ryan-salame-sentenced">who faces 7.5 years in jail</a> after being sentenced earlier this year, expressed discontent about Ellison&#8217;s sentencing.&nbsp;



Salame, in multiple posts on X, insinuated that Ellison wasn’t wholly truthful on the stand or with prosecutors though he didn’t point to anything specific.&nbsp;



Kaplan, based on what he said at the Tuesday hearing, would have to disagree. He said he could not recall one time Ellison presented “even the slightest inconsistency” in her story, both when she took the stand and during meetings with prosecutors.&nbsp;



“Snitch is one thing, completely fabricating stuff and lying about other stuff is next level brilliant,” Salame said, on the other hand.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">In other words it was her words treated as truth regardless of whether what she was saying was true or not&#8230; <a href="https://t.co/hQy81d8zJg">https://t.co/hQy81d8zJg</a>&mdash; Ryan Salame (@rsalame7926) <a href="https://twitter.com/rsalame7926/status/1838748793627455674?ref_src=twsrc%5Etfw">September 25, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Notably, Salame’s sentence is just a little over what the <a href="https://blockworks.co/news/former-ftx-exec-ryan-salame-sentencing">government initially asked for</a>. They noted that Salame’s cooperation was “minor,” so he’s in a different boat compared to his former colleague, who was the star witness at their boss’s trial last year.&nbsp;&nbsp;



Given what happened yesterday, there’s one thing we know for sure at this point: Everyone involved — including Nishad Singh and Gary Wang, who are set to be sentenced at the end of October and November — is most likely going to spend some time in a prison cell.&nbsp;



Kaplan’s made it clear that the “outrageous” fraud merits punishments, even for those who cooperated.&nbsp;



— Katherine Ross



<h2 class="wp-block-heading">Data Center</h2>



<ul class="wp-block-list">
<li>Bitcoin’s holding on to $63,760, slightly higher in the past day. ETH’s lost some momentum, down 0.6% to $2,620.</li>



<li>Total liquidations top $110 million in the past 24 hours, according to CoinGlass <a href="https://www.coinglass.com/LiquidationData">data</a>, with 56% coming from shorts.</li>



<li>Ethereum mainnet and Solana are neck-and-neck for DEX <a href="https://defillama.com/dexs/chains">volume</a> in the past three days: $3.468 billion to $3.207 billion.</li>



<li>Bitcoin Ordinals and BRC-20 activity has <a href="https://dune.com/cryptokoryo/runes">spiked</a> to near-monthly highs. </li>



<li>Daily data posted to blobs via Celestia is up 30% so far this month, from 1,200 MiB to around 1,500 MiB, per <a href="https://app.blockworksresearch.com/analytics/tia?dashboard=celestia">Blockworks Research</a> data.</li>
</ul>



<h2 class="wp-block-heading">Funds were not SAFU</h2>



We learned a lot about the alleged inner workings of TrueUSD overnight — it apparently speed ran the gauntlet of everything you shouldn’t do when managing a stablecoin.



Phony attestation reports. Opaque ownership structures. Secretly investing the assets backing the token in risky, illiquid assets.&nbsp;



All of this is “alleged” because we’re again left with an ambiguous SEC settlement that neither confirmed nor denied the charges.&nbsp;



Very helpful, considering there’s still nearly half a billion dollars in TrueUSD circulating through the crypto ecosystem right now. That includes <a href="https://www.coingecko.com/en/coins/true-usd">pairs</a> on Binance, Bybit, Gate.io and Bitget, and dozens of other exchanges. Which is absurd — if the SEC’s complaint is all true.



Regardless, what’s entirely frustrating is that, going by the timeline laid out in the SEC’s <a href="https://www.sec.gov/files/litigation/complaints/2024/comp-pr2024-145.pdf">complaint</a>, the showrunners behind TrueUSD had (allegedly) been fooling around with customer deposits behind their backs at every one of the coin’s major milestones.



What the SEC calls the “commodity fund” — which (allegedly) took dollars that had been sent to TrueUSD bank accounts in return for TUSD — starting in March 2020 (allegedly) invested in “trade finance, structured trade, export finance, import finance, supply chain financing, and project financing of entities.”&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdkn-aWsj-MvTL0A89c64lKtpAU5xwHA-jRo_QvlDAvG3FDoTw4UzHgeisk3pRgQxGCvIpfKzz9WjPajW3XyOHH8yhdHGnDcANwIk0VzNZVbhMlKy4NReYqxdtGOC8JdcAZK4nqFmGIoYFyEB6R37I8_tLj?key=EdDFFHZc7ZuPv8f3HeELUQ" alt=""/><figcaption class="wp-element-caption">FDUSD, which was a former treasury custodian for TrueUSD, is now Binance’s <a href="https://blockworks.co/news/binance-fdusd-busd">stablecoin</a> of choice</figcaption></figure>



At the same time, the team (allegedly) claimed over and over that every TUSD was backed 1-to-1 with US dollars or, at other times, cash and cash equivalents.&nbsp;



In (alleged) reality, the “commodity fund” was ramping up its allocations (read: siphoning of user funds), to the point that 99% of the assets backing TUSD as of this month were really sitting in the illiquid commodity fund.



In August 2021, a16z, BlockTower and the ill-fated Alameda Research together <a href="https://www.coindesk.com/markets/2021/08/04/a16z-blocktower-alameda-back-125m-round-for-trusttoken/">invested</a> $12.5 million in the firm’s governance token, TRU, about 18 months after the commodity fund (allegedly) started misappropriating user funds.



Binance.US <a href="https://support.binance.us/hc/en-us/articles/9774195986839-Binance-US-Lists-True-USD-TUSD-Buy-Trade-Now">listed</a> TrueUSD just over a year after that. Four months later, the flagship global Binance exchange <a href="https://twitter.com/binance/status/1636725009610571776?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1636725009610571776%7Ctwgr%5Ea8c856373ed0377e261de5de20c7e1b432eb9176%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcointelegraph.com%2Fnews%2Fbinance-replaces-busd-in-safu-fund-with-tusd-usdt">replaced</a> its beleaguered branded stablecoin BUSD with TUSD and USDT in its “SAFU” fund, which was meant to safeguard user assets against losses.



Shortly after that, in March 2023, Binance <a href="https://www.binance.com/en/support/announcement/updates-on-zero-fee-bitcoin-trading-busd-zero-maker-fee-promotion-be13a645cca643d28eab5b9b34f2dc36">made</a> it so TUSD was the only stablecoin with fee-free trading — leading to another $1.5 billion in TUSD mints over the next few months. If what the SEC says is true, at no point were all those tokens fully backed, or easily redeemable.



Of course, legitimate stablecoin issuers also invest the cash meant to back their tokens in external vehicles, although it’s usually in <a href="https://blockworks.co/news/tether-profits-versus-blackrock">short-dated US Treasurys</a>, which are super liquid and considered cash equivalents. That’s the stablecoin business model, as popularized by Tether, Paxos, Circle and even MakerDAO, now Sky.



Parts of the crypto space, including <a href="https://www.fxstreet.com/cryptocurrencies/news/traders-skeptical-about-trueusd-despite-tusd-nearing-usdt-in-bitcoin-trading-volume-on-binance-exchange-202304150036">traders</a> and media <a href="https://protos.com/whats-up-with-trueusd-and-the-rest-of-trusttokens-stablecoins/">outlets</a>, were apparently right to be skeptical of TrueUSD.&nbsp;



For all the SEC’s faults, it took a US regulatory agency to come in and show just how (allegedly) bad things were behind the scenes.&nbsp;



My prescription: the bigger, more popular and widespread the project, the more scrutiny must be applied. Continuously so. Or else crypto will be forever stuck waiting for the SEC to clean up these kinds of messes in its stead.&nbsp;



– David Canellis



<h2 class="wp-block-heading">The Works</h2>



<ul class="wp-block-list">
<li>Sky’s not offloading wrapped BTC just yet, after a chat with BitGo’s Mike Belshe, CoinDesk <a href="https://www.coindesk.com/tech/2024/09/24/sky-pauses-plan-to-offboard-wrapped-bitcoin-after-chat-with-bitgos-belshe/?utm_medium=referral&amp;utm_source=rss&amp;utm_campaign=headlines">reported</a>. </li>



<li>BlackRock’s head of digital assets Robbie Mitchnick called bitcoin a <a href="https://www.bloomberg.com/news/articles/2024-09-24/blackrock-crypto-head-mitchnick-sees-bitcoin-as-risk-off-asset">‘risk-off</a>’ asset.</li>



<li>Fortune <a href="https://fortune.com/crypto/2024/09/25/kamala-harris-crypto-policy/">broke down</a> what crypto would need to see from presidential nominee Kamala Harris.</li>



<li>Benchmark analysts <a href="https://www.theblock.co/post/317897/benchmark-says-microstrategy-could-soon-generate-yield-by-lending-its-bitcoin-holdings?utm_source=rss&amp;utm_medium=rss">said</a> that MicroStrategy could generate yield by lending out its bitcoin.</li>



<li>BNY Mellon could start custodying bitcoin for bitcoin ETFs after receiving a SAB 121 exception, Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-09-24/bny-plans-to-custody-crypto-for-etfs-after-sec-review">reported</a>.</li>
</ul>



<h2 class="wp-block-heading">The Riff</h2>



Q: Has crypto been ‘cleaned up’?



It’s true that the bad actors of the 2018 and 2021 market cycles are mostly dealt with, or will be sometime soon.



What’s uncomfortable is that instances of totally overt fraud could become increasingly rare over the coming years. Massive prison sentences and international manhunts are generally great deterrents.



Major cases like FTX, Alameda, Three Arrows, Terra and Celsius make for easy scapegoats after the fact. Same with the basic investment fraudsters that regularly get pinged by the SEC for their crypto-related crimes. It’s the low hanging fruit that’s been tidied up.&nbsp;



But crypto has agency. Radical transparency — both on and offchain — can make a lasting impact on what the industry looks like moving forward, as long as we can drop the gimmicky attestations and other similarly flimsy proofs.



— David Canellis



Are we asking Gary Gensler or crypto? Because the two would have different answers.&nbsp;



I think most of the Big Bads in the space have burnt themselves out and are properly receiving punishment served on a platter by karma (and at the hands of folks like ZachXBT, who has worked tirelessly to expose the bad actors).



The thing is, though, that it’s hard to eradicate everyone who has bad intentions. And that’s not only over here in cryptoland. Bad guys are bad guys, end of story.&nbsp;



For every TUSD settlement, there’s also a Stoner Cats settlement. Meaning that there’s a settlement that’s arguably pointing out misuse, while another shuts down a legitimate (read: not fraudulent) project.



I guess you could say that crypto’s been “cleaned up” for now. But if it’s anything like my house then it’s going to get a little dirty sooner rather than later.&nbsp;



— Katherine Ross



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Caroline Ellison sentenced while the SEC targets TUSD

The Securities and Exchange Commission announced a settlement with TrustToken and TrueCoin for defrauding investors regarding TrueUSD.



As part of the settlement, the two will pay $163,000 each, with TrueCoin paying a disgorgement of $340,000. Neither confirmed nor denied the SEC’s findings.



&#8220;The complaint alleges that, by approximately March 2022, after the TUSD operations had been sold to an offshore entity, that entity and TrueCoin had invested more than half a billion dollars of the assets purportedly backing TUSD in the speculative fund, and that, by Fall 2022, TrueCoin and TrustToken became aware of redemption problems at the offshore fund but continued to make false statements to investors casting TUSD as backed one-for-one by US dollars,” the SEC’s press release said.&nbsp;



Read more:<a href="https://blockworks.co/news/sec-commissioners-lawmakers-clash"> Lawmakers clash early on in first full SEC commissioner hearing since 2019&nbsp;</a>



“As alleged, by September 2024, 99% of the reserves backing <a href="https://blockworks.co/tag/tusd">TUSD</a> were invested in the speculative fund.&#8221;&nbsp;



The complaint filed by the SEC alleged that the defendants “offered and sold TUSD together with profit-making opportunities.”



The <a href="https://blockworks.co/tag/sec">SEC</a>, in its filing, said that the investors invested in a common enterprise — one of the prong’s of the Howey test — which would back up an alleged claim that TUSD fell under the SEC’s securities definition.



Read more:<a href="https://blockworks.co/news/lawmakers-frustrated-with-sec-crypto-approach"> Rep. Torres: SEC invented ‘crypto asset security’ out of thin air</a>



In January of this year, the stability of TUSD was <a href="https://blockworks.co/news/tusd-drop-below-dollar">called into question</a> after the stablecoin depegged, dipping below a dollar. It claimed to be the “first” dollar-backed stablecoin to have “live on-chain attestations.”



Carlos Mercado, a data scientist at Flipside Crypto, told Blockworks at the time: “I don’t know how TrueUSD was structured, but clearly off-chain liquidity reliance caused a breakdown in people’s trust of the token. In the long term, if sufficient backing is there somewhere, it will re-peg at a lower market cap.”



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TrustToken, TrueCoin settle with SEC over TUSD allegations

Bessie Liu

Stablecoin TrueUSD (TUSD) has dropped below its $1 peg following a massive sell-off.



According to CoinGecko <a href="https://www.coingecko.com/en/coins/true-usd">data</a>, the price of TUSD dipped to around $0.97 overnight. It is currently back at $0.98 at the time of writing.&nbsp;



The price of TUSD initially began to show signs of instability on Jan. 15, following traders selling over $300 million <a href="https://www.binance.com/en/trade/TUSD_USDT?type=spot">worth</a> of TUSD for USDT on Binance.



Although there have been a few buyers, Binance trading data shows that over the past five days, TUSD has seen net outflows amounting to <a href="https://www.binance.com/en/trade/TUSD_USDT?type=spot">$279 million</a>.



Ashton Addison, founder and CEO of Crypto Coin Show, told Blockworks that TUSD is currently facing an uphill battle to secure a top spot among other USD-pegged cryptocurrencies regarding widespread confidence and stability.



&#8220;A significant TUSD sell-off on Binance, leading to a break in the peg, erodes the confidence of users who rely on the assurance that they can redeem TUSD for $1 at all times,” Addison said.



It is unclear exactly as to why there has been a large sell-off of TUSD. However, <a href="https://twitter.com/0xSalazar/status/1747197420948074977">some</a> speculate that it is closely related to the recent <a href="https://blockworks.co/news/poloniex-wallets-crypto-hack">$100 million exploit</a> on Poloniex, a Justin-Sun linked exchange.



Read more: <a href="https://blockworks.co/news/justin-sun-tusd-mint">Justin Sun prints $800M in little-used stablecoin</a>



Carlos Mercado, data scientist at Flipside Crypto, notes that it is critical to monitor the market cap of the stablecoin versus the liquidity of the backing, especially when liquidity is on-chain through decentralized exchanges or off-chain via centralized exchanges or banks.



&#8220;Stablecoins are either backed by liquid cash equivalents (the way USDC and USDT act as tokenized money market funds) or are overcollateralized by highly liquid tokens like ETH,” Mercado said.&nbsp;



He notes that failure to monitor market cap vs liquidity is what led to the collapse of <a href="https://blockworks.co/tag/terrausd">Terra</a>, an algorithmic stablecoin that crashed from $1 to $0 — adding that Signature Bank’s liquidity problem had also led to a structural reduction around the market capital of USDC from $44 billion to $25 billion.



“I don&#8217;t know how TrueUSD was structured, but clearly off-chain liquidity reliance caused a breakdown in people&#8217;s trust of the token. In the long term, if sufficient backing is there somewhere, it will repeg at a lower market cap,” Mercado said.&nbsp;



Addison shares this sentiment, noting that “whether the depegging resulted from external forces or not, it poses a significant test that TUSD has failed the stability test.”



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TUSD stability questioned as value dips below one dollar

Andrew Thurman

On Friday afternoon, HTX board member Justin Sun undertook a mass printing of the little-used stablecoin TUSD, a move that caught the attention of traders as over $815 million entered circulation in less than 15 minutes.&nbsp;



Starting at 11:45 am ET, data from <a href="https://tronscan.org/#/token20/TUpMhErZL2fhh4sVNULAbNKLokS4GjC1F4">Tronscan</a> shows that $815 million <a href="https://blockworks.co/price/tusd">TUSD</a> was minted directly to the Tron blockchain across a series of 10 transactions. Each of the mints was to a new address, which then immediately sent funds to the Huobi 2 hot wallet.



Prior to these transactions, the last TUSD mint to Tron was seven days ago.&nbsp;



Shortly after these deposits, a series of nine transactions from the Huobi 2 address sent TUSD totaling roughly $815 million to a well-known and closely-watched <a href="https://tronscan.org/#/address/TT2T17KZhoDu47i2E4FWxfG79zdkEWkU9N">address</a> managed by <a href="https://blockworks.co/tag/justin-sun">Justin Sun</a>.&nbsp;



The funds were then sent to an unlabeled contract whose <a href="https://tronscan.org/#/contract/TLT4iNRdYn9avUepRbUkPZxgRsZot1tm56/code">code</a> refers to it as “minterproxy.” Minterproxy then sent $865 million in TUSD to another <a href="https://tronscan.org/#/address/TQiXPTvHuqaBW94pqrbgwptkSFXsMLrxnM/transfers">address</a>, which in turn burned the tokens.&nbsp;



However, the TUSD burns happen to align almost perfectly with mints of stUSDT. Across 10 transactions, $865 million stUSDT were minted to Sun’s <a href="https://tronscan.org/#/address/TT2T17KZhoDu47i2E4FWxfG79zdkEWkU9N/transfers">address</a>. Sun then deposited the stUSDT to Tron-based lending platform JustLend over a series of <a href="https://tronscan.org/#/address/TT2T17KZhoDu47i2E4FWxfG79zdkEWkU9N/transfers">six</a> transactions.



The deposits today now account for half of Sun’s $1.5 billion JustLend position, per Tronscan.&nbsp;



StUSDT is a staked <a href="https://blockworks.co/price/usdt">USDT</a> product that currently yields 4.2%, with claims that the yield comes from real-world assets (RWAs). According to the stUSDT website, which Blockworks viewed via a proxy as United States IP addresses are geofenced, the yield is generated via “high-grade short-term government bonds.”&nbsp;



Per DeFiLlama data, JustLend’s total value locked (TVL) increased 17% to $4.63 billion following the deposits.&nbsp;



In a recent <a href="https://cryptoslate.com/tether-denies-affiliation-with-justin-sun-linked-stusdt-protocol/">statement</a> to CryptoSlate, a Tether spokesperson said that stUSDT was “an independent project and is not affiliated with Tether.” Additionally, in July, TUSD parent company Archblocks co-founder <a href="https://twitter.com/tier10k/status/1680959101814161409?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1680959101814161409%7Ctwgr%5Ee282f3b3b38d9033ab93d95e060454601b05fe7f%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fbeincrypto.com%2Fjustin-sun-accused-secretly-acquiring-trueusd-tusd%2F">accused</a> Sun of acquiring TUSD through various shell companies.&nbsp;



Sun, who was charged with <a href="https://blockworks.co/news/sec-sues-justin-sun">fraud and other securities laws violations by the SEC in March</a>, said in a statement to Blockworks that the transactions were related to his personal fund and not Huobi business.&nbsp;



Updated Sept. 20, 2023 at 4:50 pm ET: This article has been been updated to remove a quote given on background.



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Justin Sun prints $800M in little-used stablecoin

Michael Bodley

With short interest mounting, traders say they’re parsing liquidity, as well as pricing, on the stablecoin True USD.&nbsp;



The issuers of True USD (<a href="https://blockworks.co/price/tusd">TUSD</a>) had previously claimed that it had “no exposure” to digital asset on- and off- ramp company <a href="https://blockworks.co/tag/prime-trust">Prime Trust</a> that had been recently <a href="https://blockworks.co/news/tusd-under-attack">shut down</a> by Nevada regulators.



But most recent attestation reports as reviewed by Blockworks, said that it has a $26,000 exposure to the company — which <a href="https://blockworks.co/news/prime-trust-owes-customers-85m">regulators have moved to place under receivership</a>. That exposure, though, is a pittance of TUSD’s $3 billion circulating supply.&nbsp;



Minting and redemption mechanisms around TUSD tokens have become muddled, with some users saying they’ve had trouble on both fronts.&nbsp;



Carlos Gonzalez, a research analyst at 21.co, told Blockworks on Thursday that it “didn’t make a lot of sense” for TUSD’s apparent liquidity issues to be attributed to its $26,000 of Prime Trust exposure alone.&nbsp;



“It’s insignificant,” Gonzalez said. “It’s basically nothing [compared to its $3 billion circulating supply]. If it had just been $26,000, it didn’t make a lot of sense for the stablecoin to pause minting and redemptions — but apparently Prime Trust was the clearing bank [of TUSD], and that’s why that happened.”&nbsp;&nbsp;



Users recently attempting to mint their TUSD were getting the stablecoin <a href="https://blockworks.co/news/tusd-under-attack">re-minted</a> into their wallets. TUSD had previously relied on Prime Trust to maintain its on- and off-ramp services between crypto and fiat for its users, Protos originally <a href="https://protos.com/prime-trust-accused-of-using-customer-funds-to-cover-lost-deposits/">reported</a>.&nbsp;



A Thursday independent audit of TUSD’s internal documented figures, including its holdings and associated reserves, said that the $26,000 of assets “were held at a U.S. depository institution which has communicated to customers that the institution has been ordered by state regulators to halt deposits and withdrawals for at and digital asset accounts.”



Those findings, which industry participants have said refer to Prime Trust, “impede our ability to obtain [sufficient] and appropriate evidence” regarding TUSD’s issuer’s “assertions that cash balances held in collateral at the aforementioned US-depository institution are readily convertible to know amounts of cash,” the report said.&nbsp;



It wasn’t immediately clear whether additional cash or TUSD assets reside with Prime Trust. Representatives for Prime Trust and TUSD did not return requests for comment or declined to comment.



<h2 class="wp-block-heading">TUSD depegging</h2>



The price of TUSD has fallen off as a result, depegging from the US dollar, currently trading at <a href="https://blockworks.co/price/tusd">$0.99</a>, according to Blockworks data. It had depegged more significantly prior to Thursday, paring its losses toward the end of the week.&nbsp;



Concerns around The Network Firm’s attestations of TUSD have also surfaced.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Wait, the auditor who has been attesting to the <a href="https://twitter.com/search?q=%24TUSD&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$TUSD</a> audits (in Prime Trust) was the old FTX auditor who set up under a new name after the FTX scandal?!?!? These guys literally audited the biggest grift in history and just renamed themselves?!? <a href="https://t.co/HSUNhG9lkS">https://t.co/HSUNhG9lkS</a>&mdash; Adam Cochran (adamscochran.eth) (@adamscochran) <a href="https://twitter.com/adamscochran/status/1673832056944558080?ref_src=twsrc%5Etfw">June 27, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



But Nic Carter, a general partner at Castle Island Ventures, said that two firms are not the same.



“The Network Firm is not a relaunch of Armanino, it’s a new firm entirely dedicated to crypto audits, stablecoin attests etc,” Carter <a href="https://twitter.com/nic__carter/status/1674064927609221121">tweeted</a>. “Armanino shuttered their crypto biz because they got a lot of heat post FTX.”



In the meantime, centralized exchange Kraken has <a href="https://blog.kraken.com/trading-for-trueusd-tusd-starts-june-29-deposit-now">revealed</a> that it will now support the deposits and withdrawals of TUSD on Justin Sun’s Tron Network, giving users the ability to withdraw the token if they wish to do so.&nbsp;



Interest in stablecoin-based lending, meanwhile, has remained relatively robust, Gonzalez said. That’s been demonstrated, in at least one metric, by liquidity on DeFi-based lending solutions that support TUSD and additional stablecoins.&nbsp;



TUSD is the fifth-largest stablecoin by market capitalization, trailing <a href="https://blockworks.co/price/dai">DAI</a>, and it has traded $138 million in terms of volume over the last 24 hours, according to Blockworks Research.&nbsp;



There’s no shortage of short interest against TUSD, according to Gonzalez, which has had “some impact on price.” But borrowing on the stablecoin has picked up significantly, with TUSD allocations in Curve3pool jumping to about 70% through Wednesday, notching a gain from its 27% standing as of June 20.



“People aren’t able to actually redeem right now,” he said. “It’s just getting minted back on-chain, and so that’s obviously a bad sign. We should wait and see if it’s just because of Prime Trust, and if they’re able to stave off this process.”



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Emerging Prime Trust ties have traders fretting over TUSD

Traders are rushing to short stablecoin TrueUSD.



The mounting short interest comes after cryptocurrency custodian Prime Trust could no longer <a href="https://blockworks.co/news/nevada-regulator-prime-trust">fulfill withdrawal requests</a> — and after BitGo yanked its bid to purchase Prime Trust.&nbsp;



US-based Prime Trust — known for fiat to digital asset on- and off-ramps — had before that been <a href="https://blockworks.co/news/prime-trust-said-to-be-scrambling-for-emergency-cash-package">struggling for cash</a> and had recently been ordered by a Nevada financial regulator to half operations under a cease-and-desist order.



<a href="https://blockworks.co/price/tusd">TUSD</a> representatives have <a href="https://twitter.com/tusdio/status/1671898163039596544">said</a> the stablecoin is unaffected by the situation, claiming it had “no exposure” to Prime Trust and maintained “multiple USD rails for minting and redemption.”



Protos <a href="https://protos.com/scoop-trueusd-pauses-attestations-amid-prime-trust-issues/">reported</a> earlier this week that TUSD had paused routine attestations of the stablecoin, and no shortage of traders have continued to place short bets against it since.&nbsp;



On Aave, traders are paying up to <a href="https://app.aave.com/reserve-overview/?underlyingAsset=0x0000000000085d4780b73119b644ae5ecd22b376&amp;marketName=proto_mainnet">50% APY</a> to short the asset, with one user placing a $4 million short on the stablecoin.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">$4m TUSD short put on on aave-v2 <a href="https://t.co/1accT3o45d">pic.twitter.com/1accT3o45d</a>&mdash; Will Sheehan (@wilburforce_) <a href="https://twitter.com/wilburforce_/status/1671902723006951435?ref_src=twsrc%5Etfw">June 22, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The TUSD Curve Pool shows similar signs — with its currency reserves reaching <a href="https://curve.fi/#/ethereum/pools/tusd/deposit">61%</a>.&nbsp;



A Twitter user who goes by etheraltog, noted that users attempting to redeem TUSD are getting it re-minted to their wallets.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">people try to redeem tusd and it just gets reminted to them a couple of days later lmao <a href="https://t.co/a6kxTuXPBT">pic.twitter.com/a6kxTuXPBT</a>&mdash; alto | dollar.eth (@etheraltog) <a href="https://twitter.com/etheraltog/status/1672178922488844288?ref_src=twsrc%5Etfw">June 23, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



TUSD slightly <a href="https://blockworks.co/price/tusd">depegged</a> from the dollar but regained its $1 peg through midday Friday.



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TUSD under attack following Prime Trust insolvency

Casey Wagner

TrueUSD (<a href="https://blockworks.co/price/tusd">TUSD</a>) is quickly climbing the stablecoin dominance charts, thanks to Binance. 



In top stablecoins by market capitalization, TUSD is now ranked number 29. The token’s market capitalization increased from around $755 million at the end of 2022 to $2.4 billion on Monday.



The stablecoin, which was relatively unknown until recently when <a href="https://blockworks.co/tag/binance">Binance</a> made BTC-TUSD a zero-fee trading pair, lost its dollar peg Monday, hitting a high of $1.20 relative to USDT on Binance. 



Binance’s BTC-TUSD pair is now one of the highest-volume trades in the entire industry, researchers from Kaiko said.&nbsp;



“TUSD liquidity has not kept pace with its volumes, making a depegging like this more likely,” Kaiko analysts added. &nbsp;



Monday’s TUSD depeg coincided with a number of users on Aave and Compound borrowing large amounts of the token, apparently with organic transactions, Kaiko said.&nbsp;



“The most common strategy was borrowing TUSD and swapping for USDC, effectively shorting TUSD from its elevated price,” analysts added. “However, neither Aave nor Compound have a large supply of TUSD, which meant that borrowing rates quickly surged, hitting over 100% APR on both protocols.”&nbsp;



The move also coincided with Tron founder <a href="https://blockworks.co/tag/justin-sun">Justin Sun</a> depositing over $50 million worth of TUSD on Binance, spurring speculation that Sun was trying to farm the SUI liquidity pools on Binance, which requires users to stake TUSD or BNB. Binance CEO Changpeng “CZ” Zhao threatened Sun with legal action, and Sun then admitted someone on his team was using a portion of the funds to farm, but most were to be used for market making TUSD on the exchange.



“Looking at market depth for the TUSD-USDT pair on Binance, someone has been adding liquidity in massive size: the pair is now the most liquid pair on Binance after a huge $200mn injection of orderbook liquidity at the 1% level,” Kaiko added.&nbsp;



With increased depth and surging demand — thanks, SUI launchpad — TUSD is securing its spot as a top player in the stablecoin landscape.



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