TUSD was not backed by dollars, says SEC in settlement with TrueCoin and TrustToken

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September 25, 2024

Stephen Douglas

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TUSD was not backed by dollars, says SEC in settlement with TrueCoin and TrustToken
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The United States Securities and Exchange Commission (SEC) announced on September 24 an agreement with TrueCoin LLC and TrustToken Inc. The organizations are responsible for the decentralized lending protocol TrueFi and the stablecoin TrueUSD (TUSD).

The settlement comes after allegations of investor fraud and unregistered sale of securities. According to the SEC, the companies promoted the TUSD digital currency as a dollar-backed stablecoin. However, in reality, as of March 2022, about 37% of its $565 million in collateral was allocated to hedge funds.

The report notes that by September 2024, more than 99% of the assets allegedly backing TUSD were in a fund considered risky. The SEC also noted that the fund was facing liquidity issues, with difficulties in processing redemptions, which could take up to 90 days. TUSD came to market in 2018.

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Investigations reveal that TrueCoin continued to be involved in the stablecoin operation until at least July 2023. This occurred even after the sale of its operations to an offshore entity in December 2020. The regulatory body also pointed out that the companies offered unlicensed investment contracts through the TrueFi platform, from November 2020 to April 2023. TrueFi paid interest on TUSD deposits, involving investors from the United States.

SEC says TUSD stablecoin was unbacked

TrueCoin and TrustToken settled the case without admitting or denying the allegations. The organizations agreed to pay fines of $163,766 each. In addition, TrueCoin paid $340,930 in damages and $31,538 in interest. In addition, the companies were banned from committing future violations of securities laws.

TUSD’s market cap, which peaked at $3.8 billion in October 2023, is now $485 million. This represents a drop of 87%. The stablecoin has struggled to maintain peg to the dollar, trading at $0.96 on several occasions between January and March 2024.

The case also involves Tron’s controversial founder, Justin Sun. He is said to have secretly acquired control of TUSD, although he denies the allegations. The SEC did not detail Sun’s role in the case. However, his alleged influence on the stablecoin has raised concerns about the project’s transparency and governance.

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The unfolding of this story could also have implications for other cryptocurrency projects, such as Wrapped Bitcoin (WBTC), which is reportedly undergoing a restructuring involving Sun and Tron, generating warnings about the counterparty risks associated with products related to the entrepreneur.