While the Bitcoin and crypto market has been extremely bullish in recent days as a result of spot ETF news, dark clouds are once again brewing over the market. The latest crypto drama could be the stablecoin TrueUSD (TUSD), which has lost its peg to the US dollar in the last few hours. The background is the latest revelations about PrimeTrust and doubts about the stablecoin’s full backing with reserves.
TrueUSD has been under criticism for its opacity for quite some time. However, since gaining the support of Binance and becoming the most important trading pair for Bitcoin (BTC/TUSD currently accounts for around 15%) due to 0% fees, the stablecoin has come under special scrutiny.
Speculation says that Tron founder Justin Sun is the owner of TrueUSD. However, the official emitter (Techteryx) denies this and has threatened a defamation lawsuit against those who make such claims. They also point to the real-time reserve statement with Chainlink and banking partners.
However, the threat of legal action cannot stop critics from questioning TrueUSD’s corporate structure and demanding transparency. The $3.13 billion stablecoin’s USD reserves are vital to the stability of the entire crypto market.
TrueUSD (TUSD) Red Flags
The most prominent critic of TrueUSD is Adam Cochran, partner at Cinneamhain Ventures. In a Twitter thread, the expert pointed out several red flags today. According to Cochran’s research, the auditor certifying the USD audits at Prime Trust is the old FTX auditor who set up shop under a new name after the FTX scandal.
“These guys literally audited the biggest grift in history and just renamed themselves?!?,” Cochran writes outraged, further explaining that TUSD’s chain oracle responsible for certifying reserves consists of only 17 different nodes, all from the same source, this one firm publishing one number.
A big mystery surrounding TUSD are also the custodians. Just last week, the official emitters of the stablecoin denied that the custodian Prime Trust is the only partner to mine and redeem TrueUSD. At the same time, they sent out an email on June 23 stating that mint and redeem were paused because of Prime Trust.
They have not tweeted since that day, Cochran notes. And the recent revelations surrounding Prime Trust add even more question marks behind TrueUSD’s reserves. According to recently released documents, Prime Trust’s losses date back to 2021. It is also alleged that Prime Trust lost access to legacy wallets in 2021 and used customer funds to buy back crypto.
In total, the trust has liabilities of $150 million. Prime Trust owes its clients $85,670,000 in fiat currency, but has only $2,904,000. In crypto, the custodian owes its clients $69,509,000 but has only $68,648,000.
Another red flag the analyst points out is the supposed inability to redeem TUSD. According to Cochran, several people have tried to redeem the token and have instead gotten their tokens back on the chain. A few who have managed to redeem their tokens claim to have been sent USDT on Binance instead of getting USD back.
Multiple people have tried to redeem and instead got their tokens returned on chain. A few that did manage to redeem claim to have been sent USDT instead of getting USD backhttps://t.co/gmmH0mkTHq
— Adam Cochran (adamscochran.eth) (@adamscochran) June 27, 2023
Growing Concerns After Prime Trust Debacle
A former employee who worked at TrustToken, the creator of TrueUSD before it was sold to Asian conglomerate Techteryx, also reportedly said he has evidence that users are unable to redeem USD and are instead instructed to send it to Binance and sell it there.
Cochran has even offered a $1,000 bounty in order to prove that someone can mint/redeem an amount greater than $500,000. However, only one person had attempted to claim the bounty and showed Cochran a transaction 10 days before the pause. Cochran’s conclusion, therefore, is:
This looks so bad for TUSD that at this point if CZ isn’t at least pausing TUSD as collateral on Binance, then it raises serious questions about being complicit in whatever TUSD is doing. I may be Binance biased, but no one can justify that risk management.
At the time of writing, the TUSD/USDT price on Binance fell to 0.9985, which may be related to the exit from the Binance launch pool MAV mining. TrueUSD deposit and loan rates on Aave V2 jumped, with the deposit rate reaching 42% at one point and the loan rate reaching 54%.
Featured image from iStock, chart from TradingView.com