Author: Nancy, PANews
On September 25, the U.S. SEC announced on its official website that it had filed charges against TrueCoin LLC and TrustToken Inc. for suspected fraudulent and unregistered sales of investment contracts for TrueUSD (TUSD).
Faced with the SEC's regulatory iron fist, former stablecoin TUSD operators TrustToken and TrueCoin did not respond directly, but quickly agreed to pay fines to resolve the crisis. At the same time, SEC documents revealed that TUSD has risks such as redemption difficulties, and on-chain data shows that TUSD is highly controlled. Whether TUSD's regulatory crisis can be safely resolved still needs to wait for the approval of the settlement agreement, but its market confidence has been challenged.
More than 99% of the assets are reserved in First Digital, and Justin Sun’s team holds more than 80% of the assets
According to the complaint filed by the SEC in the U.S. District Court for the Northern District of California, TrueCoin is the issuer of TUSD and TrustToken is the developer and operator of TrueFi. TrueCoin and TrustToken conducted unregistered sales of investment contracts from November 2020 to April 2023, and promoted the profit opportunities of TUSD and its operating lending protocol TrueFi to guide investors' expectations. For example, according to an article published by TrueFi in 2021, the annualized lending yield (APY) of TUSD was approximately 21.37% at the time. As of the end of 2021, more than 78 million TUSD (approximately 6% of the TUSD circulation at the time) were loaned out on the TrueFi protocol.
The document also states that TrueCoin and TrustToken made false statements about asset reserve support. Although these companies claimed that TUSD was pegged 1:1 to the US dollar, a "substantial portion" of TUSD-backed assets were invested in a speculative and high-risk offshore investment fund to obtain additional returns. For example, by March 2022, $565 million worth of TUSD reserves were invested in the fund, accounting for about 37% of the TUSD circulation.
The documents revealed that this transfer behavior was particularly evident from the end of 2020 to mid-2023. During this period, TrueCoin sold TUSD operations to an unrelated offshore entity in December 2020, and TrueCoin remained deeply involved in TUSD operations until at least July 2023. It was not until the fall of 2022 that TrueCoin and TrustToken realized the liquidity problems of the offshore investment fund and requested redemption, but the request was delayed. After July 2023, there were several large-scale TUSD redemptions after TrueCoin and TrustToken no longer participated in TUSD operations. But until September 2024, more than 99% of the assets supporting TUSD were still invested in the offshore investment fund.
TUSD asset reserves Source: Moore Hong Kong
According to the reserve transparency report released by Moore Hong Kong, TUSD's Hong Kong auditing company, on September 25, the total amount of TUSD is 495 million, with collateral valued at nearly $503 million, including 0 U.S. Treasury bonds, $1.092 million in cash, and nearly $502 million in First Digital Trust Limited, accounting for about 99.8%. From this data, the offshore investment fund mentioned by the SEC may be First Digital, and the change from the original 37% of the circulation ratio of the fund's reserves to the current 101.4% and the small proportion of other collaterals also means that the redemption of TUSD during this period was completed through U.S. Treasury bonds and cash reserves.
"The $500 million reserve corresponds to the funds deposited in First Digital in the Moore report. There are some reports that First Digital's channels have had some problems and may not be able to be retrieved. The $500 million deposited in First Digital has not changed in the Moore transparency report, which seems to be a proof of this. If First Digital's funds are difficult to redeem, then TUSD is actually air." Wu said blockchain analyst @defioasis posted a message pointing out that according to on-chain data, more than 80% of TUSD is already managed by Justin Sun's team. The address marked by Arkam as suspected to be Justin Sun: 0x9F...19Fe accounts for 50% of the total; JustLend has 146 million TUSD, accounting for 30%; SUN io pool has 6.5 million TUSD, accounting for 1.3%; the rest is distributed in exchanges such as Binance and unmarked addresses.
@defioasis further pointed out that the biggest use case of TUSD is currently in JustLend, where TUSD can be pledged to other assets such as USDT. Currently, the largest loan on JustLend is USDT, with a loan amount of 63.44 million US dollars. In addition, in the stablecoin stUSDT used for RWA by the Justin Sun team, stUSDT can be minted using USDT and TUSD in the Tron network. The total amount of stUSDT is 225 million, of which 72% is stored in HTX and 8.24% is held by Justin Sun: 0x17…a132. He believes that TUSD may have become an empty shell, and the total amount has been reduced to a small amount, basically controlled by the Justin Sun team, and idling does not seem to be a big problem.
“TrueCoin and TrustToken sought to profit from misrepresentations about the security of their investments, exposing investors to numerous undisclosed risks. This case is a classic example of the importance of registration, as investors were deprived of critical information needed to make fully informed decisions in these types of products,” said Jorge G. Tenreiro, acting chief of the SEC’s Crypto Assets and Cyberspace Division, in a statement.
The settlement agreement still needs to be approved, and there have been large changes after being accused.
In the past, most crypto projects that were sued by the SEC would often pay settlements to resolve the charges.
According to the SEC, TrueCoin and TrustToken agreed to accept a final judgment prohibiting them from violating relevant provisions of the federal securities laws and pay a civil penalty of nearly $164,000 each, without admitting or denying the allegations. TrueCoin also agreed to return approximately $656,000 in profits and interest.
However, it should be noted that the settlement agreement still needs court approval and the SEC's investigation is still ongoing. According to the SEC's litigation settlement procedures, after the law enforcement officers and the parties reach an agreement on the settlement terms, the settlement documents must be submitted to the judge for a consent order.
After TUSD was accused, Sun Yuchen's on-chain address showed large-scale abnormal movement of TUSD. According to Arkham data monitoring, the suspected Justin Sun marked address 0x9FCc transferred 72 million TUSD to HTX in the past 12 hours, and the address currently holds nearly 170 million TUSD. In addition, on-chain analyst Yu Jin also pointed out that the relevant address of Sun Ge's team transferred a total of 216.6 million TUSD from the TRON chain and the Ethereum chain to HTX last night. The supply of TUSD is only 495.5 million, and the relevant address of Sun Yuchen's team holds 390 million.
In addition, DEX Curve is considering removing TUSD from the collateral list of its stablecoin crvUSD due to SEC charges. The proposal states that “crvUSD is overly reliant on small stablecoins, especially TUSD, which has questionable past performance and was recently charged by the SEC for defrauding investors. LlamaRisk (Curve lending platform) has been skeptical of TUSD and recommends that stakeholders review Public certifications provided by TUSD. These certifications show that almost 100% of the reserves are related to the Hong Kong custodian: The Hong Kong custodian also invests in other financial instruments to generate income, and these investments may not be converted into cash quickly and are affected by market conditions or fund performance. Based on publicly available information, we cannot tell whether the asset reserves backing TUSD are liquid or whether the stablecoin is solvent. What we do know is that TUSD experienced a prolonged decoupling of supply after being delisted from Binance in February. Dropping from $3.3 billion in November 2023 to $500 million in April 2024, the supply has stabilized significantly since then, suggesting that there is little public interest in the stablecoin and that it may be primarily owned by insiders. 78% of the Ethereum supply (about 50% of the total supply) is held by EOA (external accounts) related to Justin Sun, so it may be wise to completely remove crvUSD’s exposure to TUSD.”
