First Digital USD (FDUSD) — a new competitor to USDT and USDC?

The majority of the stablecoin market (more than 88%) is occupied by the giants USDT and USDC, but there are also new tokens that have an excellent chance of improving their positions in this segment. One such stablecoin is FDUSD, which we will discuss in this article.

What is First Digital USD?

First, Digital USD or FDUSD is a new centralized stablecoin tied to the U.S. dollar exchange rate and backed by currency and equivalent assets. Other than the composition of the reserves, FDUSD is virtually no different from typical stablecoins such as USDT, USDC, or TUSD.

The FDUSD token was issued in June 2023 by FD121 Limited, a Hong Kong-registered trust company First Digital Trust Limited subsidiary. The latter is one of the fintech giants in Asia, providing a wide range of services from administration to escrow account maintenance, and has even won the Hong Kong Emerging Giants Award.

Brief background

Before FDUSD, one of the main stablecoins on the Binance exchange was Binance USD (BUSD), issued by the issuer Paxos, which also issued other well-known stablecoins, PAX Dollar (USDP) and PayPal USD (PYUSD). BUSD was used for steaking, participating in lunchepools, and performing many other functions on exchanges.

However, the U.S. Securities and Exchange Commission (SEC) banned using BUSD, so cryptocurrency exchange Binance was forced to abandon the stablecoin. The FDUSD token has just replaced the Binance USD stablecoin.

Features of First Digital USD and reserves

According to the requirements of the local regulators of Hong Kong, the reserves of First Digital Trust Limited must be kept segregated, i.e. separate accounts, so as not to mislead investors — this can be attributed to the pros of the project. By combining reserves and their assets, issuers can provide incorrect data regarding cryptocurrency collateral and speculate on this.

Another requirement for the company is to keep reserves in the ratio of 1 to 1 in cash or highly liquid assets. The high collateral requirements indicate the high reliability of FDUSD, which is not the case with USDD, for example, backed by volatile assets. Also, the process of token redemption in the event of a USDD stablecoin crash has not been fully disclosed.

FDUSD token

Stablecoin appeared only in June 2023, but despite this, FDUSD already ranks sixth in capitalization among stablecoins and 43rd among all cryptocurrencies according to CoinMarketCap rankings. First Digital USD's capitalization reached nearly $1.8 billion at the time of writing and has already surpassed BUSD, Tron's USDD, and Paxos' USDP by this metric.

First Digital USD has been issued on the Ethereum and BNB Smart Chain networks as an ERC-20 and BEP-20 token, respectively. The price of the FDUSD token is pegged to the USD exchange rate and should not deviate significantly from it. The only strong deviation occurred at the end of July 2023, a few days after the listing: the FDUSD exchange rate reached $1.05. A sudden surge of traders and investors could have caused this. However, the price then quickly corrected and returned to the normal range.

As we have written above, the FDUSD token has replaced BUSD and is now used for staking on the Binance exchange, as well as performing other functions as one of the main stablecoins of this platform. Since FDUSD has become part of the Binance ecosystem, the stablecoin can also be used for payments via the Binance Pay service, which can be helpful for citizens living or simply staying abroad.

In addition to the above functions, FDUSD is suitable for making international transfers. The BNB Smart Chain blockchain transaction cost will be only a few cents, regardless of the transfer amount. Also, FDUSD stablecoin is actively used in DeFi for lending (lending), farming and so on.

Outlook

Compliance with regulatory rules and support from one of the largest crypto exchanges, Binance, indicate the high reliability of First Digital USD stablecoin, which is also evidenced by the rapid growth of capitalization. In less than 6 months, this indicator has grown 90 times from $20 million to $1.8 billion. In the last month alone, FDUSD capitalization has grown almost 3 times.

However, the same features make stablecoin centralized, i.e. under the full control of the issuer, who has to follow the regulator's instructions strictly. Retail investors see this as a threat, believing cryptocurrencies should remain decentralized. However, the same attributes can help attract institutional capital, which will be a strong growth driver for both the First Digital USD stablecoin and the crypto market.

The negative factors include a short period of use: the FDUSD stablecoin has been on the market for less than half a year, so it is too early to assert its reliability. First Digital USD has not yet been tested for strength, unlike the already established USDT, USDC, DAI and even BUSD, as there have been no significant collapses or upsurges of cryptocurrencies during this period. In this regard, the risk of losing the peg to the U.S. dollar exchange rate remains relatively high.

However, in the meantime, it is worth noting the high liquidity of stablecoin, surpassing even DAI and TrueUSD. The trading volume of the FDUSD stablecoin exceeds $3.5 billion, which is only half as much as the second in capitalization USDC.