First Digital USD (FDUSD) retired $390M in a week

First Digital USD (FDUSD) is once again shrinking its supply, potentially pointing at a market slowdown. FDUSD retired another 75M tokens on Tuesday, extending its series of withdrawals from Binance. 

First Digital USD (FDUSD) diminished its supply in the past week, from 3.11B tokens down to 2.72B tokens. For FDUSD, this is the third episode of correcting its supply. After the March-April market peak, FDUSD performed a similar operation, retiring up to 50% of tokens. 

The latest round of token withdrawals was done with the assistance of Wintermute, using one of its known wallets to move the stablecoins. The FDUSD moved back to a First Digital Labs wallet. Wintermute and Cumberland have been identified as the whale wallets with significant control over liquidity flows in the past few months. 

The latest withdrawal of FDUSD from Binance follows a month of rather aggressive expansion. In August, FDUSD grew its supply from 1.9B tokens up to a peak of 3.11B. More than 90% of all FDUSD volumes are concentrated on Binance, with almost no distribution to other markets or DEXs. 

The recent deleveraging of FDUSD coincided with a crash in the stablecoin’s premium. At the end of August, FDUSD once again stepped back to $0.99, signaling that a new deleveraging may be coming. The token withdrawals were not much delayed, and they immediately started to cut into the supply.  

At the same time, Tether (USDT) continued to increase its supply slightly, adding around $100M since August 26.

Market slide coincides with FDUSD deleveraging

FDUSD seemingly does not even appear among top stablecoins, and its relative novelty means tracking is still difficult. Even Arkham is just discovering most of the counterparty addresses linked to FDUSD minting and redemptions. 

The latest round of minting and redeeming FDUSD coincided with the price moves of Bitcoin (BTC) in August. After the August 5 market correction, the newly added FDUSD coincided with the BTC climb and recovery to $64,000. 

The recent cuts to the supply coincide with a BTC drawdown, as the asset is back in the $58,000 range. With USDT printing also slowing down, the leading coin has received a bearish signal based on available liquidity. 

FDUSD changed its reserves profile

In its initial stages, FDUSD was fully fiat-backed. The composition of reserves was settled about a year ago, and now FDUSD claims backing by both cash and US treasuries. Cash backing fell to under 40%, with the rest in short-term T-bills or overnight debt. FDUSD claims to be redeemable directly from First Digital Labs, though through a specific process requiring prior agreements and monitoring. For other redemptions, buyers will need to use the open market. 

FDUSD aims to tailor its supply to the market demand. The asset is among the most widely used stablecoins on Binance’s markets, serving as a replacement for Binance USD (BUSD). A shrinking supply may once again coincide with a market drawdown. 

The FDUSD stablecoin is minted by FD101 Limited, also known as First Digital Labs. The company is founded and based in Hong Kong. The digital asset is issued in more than 99% of cases based on Binance’s internal demand. 

The stablecoin receives smart contract monitoring from Peckshield, while Prescient Assurance audits its reserves. FDUSD claims to be backed by liquid assets and fiat, publishing its first reports since the summer of 2023. 

The stablecoin is also programmable, with built-in escrow functions, insurance, and other features allowing First Digital Labs and Binance to control the asset directly without resorting to third-party contracts. The most controversial feature of FDUSD is its ability to be frozen. Most of the FDUSD supply is still on Ethereum, while the coins available on BNB Smart Chain fell by 50% in the past four months. 

Around 1.8B of the available FDUSD can be tracked to the Binance Hot Wallet 20. Recently, the wallet increased its holdings, while another high-balance wallet divested its holdings from above 1B tokens to around 120M. With the concentration in the hands of whales, FDUSD manages to be even more efficient than other stablecoins. The inflows of FDUSD in the market had a more direct effect compared to the expansion of other niche stablecoins. 

In 2024, the overall supply of stablecoins is above 167B, though the profile of each coin is also tied to its final effect on centralized or decentralized exchanges. 

Cryptopolitan reporting by Hristina Vasileva