Is TUSD SEC's Settlement The Final Nail In The "Obscure" Stablecoin's Coffin?
TUSD has always raised concerns among DeFi insiders. Now that the SEC's investigation results have become public, its survival is on the line.
The United States Securities and Exchange Commission (SEC) has concluded that TrustToken, the issuer of the dollar-pegged stablecoin TrueUSD (TUSD), has consistently lied to holders.
A September 24 press release issued by the federal enforcement agency notes that the "all is super safe" façade has been maintained even in moments of extreme uncertainty.
TUSD has raised concerns ever since it rose to prominence last year.
The media has consistently characterized the token and the two companies that have issued it as "obscure," and DeFi insiders have raised concerns several times over the "lack of transparency" of Trust Token and Techteryx—the Hong Kong-based company to which the stablecoin operations were sold in 2023.
The SEC Investigation
The SEC's complaints over the activities of TrueUSD managing firms and TrueCoin, the developer and operator of lending protocol TrueFi, culminated in a $700,000 settlement, of which $400 thousand are on TrueCoin for illegally acquired gains.
The SEC investigation revealed that TrueCoin and TrustToken made false claims regarding TUSD's backing. They told investors the token was fully backed by U.S. dollars or liquid equivalents, but it wasn't.
Instead, most of its reserves have been invested in a "speculative and risky offshore investment fund." As of September 2024, the federal agency believes 99% of TUSD backing assets are invested in a high-risk fund.
Furthermore, the SEC investigation uncovered that the stablecoin issuers were aware of redemption problems with the fund in late 2022 and nonetheless continued to market TUSD as safely backed on a 1:1 ratio to the dollar.
"TrueCoin and TrustToken sought profits for themselves by exposing investors to substantial, undisclosed risks through misrepresentations about the safety of the investment," said Jorge G. Tenreiro, Acting Chief of the SEC's Crypto Assets & Cyber Unit.
In addition to these allegations, the SEC has also accused TrueCoin of engaging in the "unregistered offer and sale of investment contracts," a claim the regulator makes in almost every cryptocurrency case it interposes.
Aftermath
In the aftermath of the settlement, the governance community of Curve Finance, one of the largest decentralized exchanges on Ethereum and Polygon, has started discussing removing TUSD from its place as collateral for Curve Stablecoin (crvUSD).
Curve's TUSD removal proposal, set forward by WormholeOracle, warns: "crvUSD is overexposed to minor stablecoins, especially TUSD, which has a dubious track record and has recently been charged by the SEC with defrauding investors."
It mentions an extensive report on True businesses conducted by the risk management service LlamaRisk published in August 2023.
The report advised Curve to exclude TUSD from its reserves, citing transparency concerns regarding TUSD custodial partners, reserves management, attestations, on-chain operations, and ownership structure.
It reads, "We can not have informed confidence in the solvency of TUSD or its peg given Techteryx's current transparency policy."
Where Is TUSD Going Now?
TrueUSD was a practically unknown currency when, in March 2023, Binance eliminated the zero-fee trading on its platform, except for the BTC-TUSD pair, and later added it to its LaunchPool.
In that year, the issuance of TUSD increased by more than 200%, its market cap reached a zenith of $3.3 billion, and it became, for a brief period of time, the 5th largest stablecoin in the market.
The relationship with Binance changed in October 2023, with the crypto exchange reinstating fees, and the market cap went downhill. From its highest point ever, the TUSD market cap fell to slightly less than half a billion by March 2024 and has stayed at that level ever since.
In January 2024, Binance excluded the stablecoin from its Launchpool, its main use case, which caused it to lose its peg to the dollar for almost two months.
Stablecoins are meant to offer stability in an extremely volatile world. Now that the SEC's investigation is out there, it has stained what was left of TUSD's reputation, making it look like nothing like a safe deposit for hard-earned dollars.
But if Curve's WormholeOracle investigation is correct and the remaining supply is held by insiders, then the stablecoin might remain in the vegetative state it has been in since March.
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