What is First Digital USD (FDUSD)?

tl;dr

• FDUSD was launched in June 2023 to restore confidence in stablecoins.
  
  
• FDUSD is an ERC-20 standard token built on both Ethereum and BNB, making it easily transferable and integrable into DeFi applications.
  
  
• It is widely used as part of a trading pair on exchanges and DEXs, prominently listed on Binance, PancakeSwap, and Uniswap.
  
  
• FDUSD maintains its 1:1 peg with USD through reserves and arbitrage mechanisms.
  
  
• Key features include being pegged to the USD, backed by real dollars, regular audits, and efficient transactions leveraging Ethereum's network.

What is FDUSD? 

Since the COVID-19 bull run, the demand for stablecoins has remained consistently high, reflecting their crucial role. However, the supply of stablecoins has faced several challenges.

One significant setback was the collapse of FTX before it managed to release its anticipated FUSD stablecoin. The failure of Luna and its partner stablecoin Terra further destabilized the market, shaking investor confidence. Binance's announcement to phase out BUSD added to the uncertainty, while USDC experienced a temporary depeg following the collapse of Silicon Valley Bank. These events collectively underscored the volatility and risks associated with stablecoins, even those pegged to traditionally stable assets.

Amidst this backdrop, First Digital, also known as FDUSD, was launched in June 2023. Issued by FD121 Limited, a subsidiary of the Hong Kong-headquartered financial firm First Digital Limited, FDUSD was designed to restore confidence in stablecoins. The stablecoin is backed by one U.S. dollar or an asset of equivalent value held in reserves by its appointed custodian, First Digital Trust Limited. This backing aims to ensure the stability and reliability of FDUSD, offering a secure alternative in the fluctuating stablecoin landscape.

FDUSD is available on multiple chains, including Ethereum, BNB, Sui and more! At the time of writing, FDUSD has a market cap of $1,906,635,697 and is the 43rd most popular cryptocurrency.

‍

How Does FDUSD Work? 

FDUSD is an ERC-20 standard token built on both Ethereum and BNB. As an ERC-20 token, it is easily transferable between different Ethereum and BNB wallets. Additionally it is easily integrated into DeFi applications such as DEXs. 

Infrastructure and Network

FDUSD is widely used as part of a trading pair on exchanges and DEXs. The token is prominently listed on Binance, with a wide array of pairs as well as the DEXs PancakeSwap and Uniswap.

How Does FDUSD Keep its 1:1 Peg with USD

FDUSD maintains its 1:1 peg with USD through a two-pronged approach: reserves and arbitrage mechanisms. FDUSD is backed by a reserve of cash and cash equivalents, such as US dollars or assets that can be easily converted to USD. This reserve ensures that for every FDUSD in circulation, there's an equivalent amount of USD available, allowing users to redeem their FDUSD for 1 USD at any time. 

Additionally, arbitrage mechanisms incentivize traders to exploit price discrepancies between FDUSD and USD, thereby pushing the price back to $1 whenever it deviates. This combination of reserves and arbitrage helps keep FDUSD's market value consistently close to $1.

‍

Key Features of FDUSD

FDUSD's key features align with those of other popular stablecoins. 

It is pegged to the USD, maintaining a 1:1 value with the US dollar, which offers stability amidst cryptocurrency volatility. Each FDUSD token is backed by real dollars and dollar-equivalent assets, ensuring its peg. Regular audits by independent third parties ensure the transparency and legitimacy of FDUSD reserves. Users can redeem their FDUSD tokens for USD at a 1:1 ratio through authorized channels. 

As an ERC-20 token, it benefits from Ethereum's robust network and smart contract capabilities. Transactions are efficient, leveraging Ethereum's speed and security for faster and cheaper transfers compared to traditional methods. FDUSD also provides a safe haven for investors seeking to avoid market volatility and facilitates faster, cheaper cross-border transactions.

FDUSD Use Cases

FDUSD offers several use cases due to its stable value and functionality within the cryptocurrency ecosystem. 

For remittances, FDUSD provides a cost-effective and fast option for sending money across borders, with lower fees and quicker processing times than traditional services. In the volatile cryptocurrency market, FDUSD serves as a stable asset for investors to hedge against price swings, allowing them to convert holdings to FDUSD to avoid losses or re-enter the market strategically. Additionally, FDUSD offers an alternative for users seeking stablecoin diversification within their crypto portfolios, complementing established stablecoins like USDT.

Challenges & Risks

FDUSD faces several challenges and risks as a relatively new stablecoin. It isn't widely traded on many exchanges other than Binance and lacks the adoption seen with USDC or USDT in DeFi protocols, requiring it to prove itself for wider acceptance. 

As for risks, despite being fully audited and having regulatory approval, FDUSD can still face temporary or permanent depegging in extreme market conditions. Additionally, there's the risk that Binance or other exchanges may phase out FDUSD, similar to BUSD, which could make it less appealing compared to more established stablecoins like USDT or USDC.

It is important to note, however, that these risks are shared by most, if not all stablecoins. 

Why did Binance Stop Supporting BUSD?

Binance stopped supporting BUSD primarily due to regulatory pressure. The stablecoin, issued by Paxos, came under scrutiny from the New York Department of Financial Services (NYDFS), which raised concerns about Paxos' oversight of its relationship with Binance and the management of BUSD. The NYDFS identified unresolved issues that could impact BUSD's peg to the US dollar, raising doubts about its stability and regulatory compliance. 

Consequently, Paxos was ordered to halt the issuance of new BUSD tokens in February 2023, limiting its supply and trading activity. By ending support for BUSD, Binance aimed to mitigate potential regulatory risks and maintain good standing with regulators.

Comparing FDUSD to USDT and USDC

FDUSD bears a lot of resemblance to USDT and USDC as they are all fiat-backed stablecoins. The key differences between the three are market cap, availability, and the issuer. USDC is issued in a joint venture with Circle and Coinbase. USDT is issued by iFinex, with a tight business relationship with the exchange Bitfinex, and FDUSD is associated (albiet not directly) with Binance.

FDUSD is also the newest stablecoin when compared to USDC and USDT. As such, the number of integrations for FDUSD in DeFi dApps is growing and is lower than the competition. 

Final Thoughts

FDUSD's growth potential hinges on wider exchange trading and DeFi integration. Increased exchange listings would enhance its liquidity and accessibility, while integration into DeFi protocols could drive its adoption for lending and borrowing. 

To a certain degree, FDUSD's success is tied to Binance's performance as a leading exchange. Binance's growth and influence can positively impact FDUSD's liquidity and visibility within the cryptocurrency market.