The credit rating agency says information about the stablecoin’s composition is scarce, and governance doesn’t have clear guidance.
Credit rating agency S&P Global Ratings assigned TrueUSD (TUSD) its lowest possible score, concluding that the stablecoin’s ability to maintain its dollar peg is unlikely. S&P Global Ratings gave TUSD’s ability to remain at $1 a score of 5 on a 1-5 scale, where 1 is “very strong,” and 5 is “weak.”
In its assessment, published on Nov. 14, the credit rating agency noted that TUSD issuer Techteryx — which bought TUSD in December 2020 from ArchBlock, and has been publicly connected to TRON founder Justin Sun — had most of the stablecoin’s reserves held by a single custodian, First Digital Trust Ltd. (FDTL).
S&P Global Ratings’ assessment was published just a day after reports surfaced that a Dubai court had issued a global freeze on nearly half a billion dollars in TUSD reserves, as part of ongoing legal dispute.
Battle Over TUSD Reserves
Court filings by Techteryx in Dubai show that around $456 million of TUSD’s reserves, on Techteryx’s own instructions, were sent for investment purposes in multiple payments between June 2021 and March 2022 to Aria Commodities DMCC, a Dubai trade firm.
But the court found that Aria DMCC “has been unable to show precisely how the money was used, what assets were purchased or what became of them.” To recover the funds, Techteryx has launched legal action against Aria and several regional banks.
As a result, Dubai’s Financial Centre Court froze those assets in an amended judgement dated Oct. 17 — with media reporting on the freeze just last week — while the case is ongoing.
Although Techteryx and its backers are currently supplying liquidity so holders can still redeem TUSD at $1, S&P Global Ratings warned in its report that “in the absence of liquidity support from Techteryx, TUSD may lose its peg.”
A spokesperson for Sun told The Defiant that Sun is indeed “an advisor of Techteryx,” and confirmed reports that Sun had personally contributed the almost half a billion dollar sum to TUSD’s reserves.
The spokesperson told The Defiant that TUSD’s issuer “approached Justin for support when they found a substantial amount of TrueUSD reserves were misappropriated by Aria, First Digital Trust and their co-conspirators.” Sun’s spokesperson added:
“To protect the public token holders’ interests, Justin made capital commitment and provided nearly $500m liquidity support.”
Shady Past
The credit agency also criticized a lack of public information about Techteryx itself, saying “public information about Techteryx’s ownership or other activities is scarce.” S&P noted that TUSD remains unregulated and that it hasn’t seen legal opinions confirming the reserves are separated from Techteryx’s own assets.
S&P Global Ratings also highlighted past issues with TUSD’s previous operators. For instance, TrueCoin, a subsidiary of ArchBlock, and TrustToken, developer of the lending protocol TrueFi, were subject to a U.S. Securities and Exchange Commission complaint.
The U.S. watchdog alleged that from November 2020 to April 2023, both firms “engaged in the unregistered offer and sale of investment contracts in the form of the crypto asset TUSD and profit-making opportunities with respect to TrueUSD on TrueFi.”
Both firms agreed to settle the charges, though the settlements haven’t yet been formally approved by the court, the credit rating agency noted.
Even though TUSD’s reserves are checked in real time by Moore, a Hong Kong accounting firm, S&P says transparency gaps still persist. The agency added that TUSD remains “confidence sensitive” because of weak governance and unclear asset quality, making improvements in its stability score unlikely.
Since January this year, TUSD has mostly traded just at or just below $1, per data from CoinGecko.
“We see an improvement in the stablecoin stability assessment as a remote scenario,” the S&P Global Rating report concludes.
