First Digital USD (FDUSD) Reduces Supply by $390M in One Week

First Digital USD (FDUSD) has again reduced its supply, cutting $390 million worth of tokens within a week. This latest move follows a series of withdrawals from Binance, with FDUSD retiring another 75 million tokens on Tuesday.

Over the past week, FDUSD’s supply has decreased from 3.11 billion tokens to 2.72 billion, marking the third instance of supply correction. This action mirrors a similar operation earlier in the year, where FDUSD retired up to 50% of its tokens following a market peak in March and April.

Wintermute involvement in the latest token withdrawal

The recent round of token withdrawals was facilitated by Wintermute, a key player using one of its known wallets to move the stablecoins back to a First Digital Labs wallet. Wintermute and Cumberland have been identified as whale wallets that have significantly controlled liquidity flows in recent months.

This latest withdrawal from Binance comes after a rapid expansion in August, where FDUSD’s supply grew from 1.9 billion tokens to a peak of 3.11 billion. Over 90% of FDUSD volumes are concentrated on Binance, with minimal distribution to other markets or decentralized exchanges (DEXs).

FDUSD’s market dynamics and liquidity concerns

The recent deleveraging of FDUSD coincided with a drop in the stablecoin’s premium, as it once again fell to $0.99 at the end of August. This price adjustment suggested a potential new round of deleveraging, which soon materialized as the token withdrawals began to cut into the supply.

At the same time, Tether (USDT) has continued to increase its supply, adding approximately $100 million since August 26. However, the reduction in FDUSD’s supply aligns with a broader market slide, as Bitcoin (BTC) prices also faced a drawdown, falling back to the $58,000 range.

Changes in FDUSD’s reserve composition

Initially, FDUSD was fully backed by fiat. However, its reserve composition changed over the past year, with the stablecoin now backed by cash and U.S. Treasuries. The cash backing has dropped to less than 40%, with the remainder in short-term T-bills or overnight debt.

FDUSD, issued by FD101 Limited, also known as First Digital Labs, continues to tailor its supply to market demand. The stablecoin, widely used on Binance’s markets as a replacement for Binance USD (BUSD), sees its supply adjustments as potentially linked to broader market trends. The shrinking supply of FDUSD may indicate a further market drawdown.

The stablecoin is primarily issued based on Binance’s internal demand, and it receives monitoring from Peckshield and audits from Prescient Assurance. Liquid assets, fiat back FDUSD, and its first reserve reports were published in the summer of 2023.

FDUSD’s programmable nature, including escrow functions and insurance features, allows First Digital Labs and Binance to control the asset directly without third-party contracts. However, its ability to be frozen has raised some concerns. Most of the FDUSD supply remains on Ethereum, while the amount on BNB Smart Chain has halved over the past four months.

With significant holdings in whale wallets, FDUSD has shown a more direct market impact than other niche stablecoins. As of 2024, the overall stablecoin supply is over $167 billion, with each coin’s profile influencing its effect on centralized or decentralized exchanges.

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