“Not your keys, not your crypto” – this has been echoing through numerous crypto Twitter feeds for a few days. The reason: authorities in the USA provided the custody service provider Prime Trust on June 27th under receivership. The company is said to be bankrupt and owes its customers more than $85 million – but has no more than $3 million in reserve. However, what further from the court documents emerges, points to scandalous machinations that FTX recently put on the day. That could turn out to be a big problem for the stablecoin TUSD.
In Prime we trust?
Prime Trust is a custodian, in German, a service provider for the safekeeping of its customers’ cryptocurrencies in suitably secured wallets. However, the company is said to have lost access to these as early as 2021, as the documents show. The customers knew nothing about it. Instead, the company used new users’ money to buy back lost crypto and service payouts. Something similar happened in the FTX, Alameda Research and Sam Bankman-Fried scandal.
The company even seems to have gotten away with it for several years, until rumors of default circulated earlier this month. Shortly thereafter there was one Takeover by competitor BitGo in the room. In the last moment however, BitGo withdrew the offer. A little later, Prime Trust stopped all deposits and withdrawals at the behest of the Nevada tax authorities. The “defendant” was therefore no longer able to “appreciate payments from his customers,” it said in the arrangement. As a result, observers turned their focus to the stablecoin TrueUSD (TUSD), which Prime Trust used, among other things, to convert the coin to US dollars.
Wobbly candidate TUSD?
According to its own statements, TrueUSD had already ended its relationship with Prime Trust a few weeks ago. However, the conversion of the stablecoin was allegedly not affected by the company’s failure, as other service providers could be used.
But it remains questionable how little TrueUSD was exposed to the failure of Prime Trust if they had already lost large parts of their customer assets in 2021. In fact, there were recently inconsistencies in a review of TUSD’s reserves by the Ripcord service. This reasoned TrueUSD with “a delay in the API interface of a new banking partner”. The reserves can be cross-checked by means of a Proof of Reserves, the Chainlink provides.
The Oracle service names “The Network Firm” as the data source for the attestation. But this company’s past doesn’t give many reasons for optimism. According to reports, is the same company that audited the reserves of FTX US. Originally called Armanino, it changed its name in the wake of the FTX fiasco. What that means for the credibility of TUSD reserves is anyone’s guess.
Everything just FUD?
Meanwhile, TUSD’s connection to the falling crypto custodian Prime Trust and the unclear position of reserves are making some crypto investors uneasy – and speculators cheering. The stablecoin recently lost its value, albeit only minimally at first peg to the US dollar and trades at 99 cents. It is not the first deviation in recent weeks and yet the lasting effect is worrying. Meanwhile, on-chain analysis platform PeckShield reports further sell-offs of TUSD at Curve and other trading venues.
How Adam Cochran on Twitter reported, there have also recently been suspiciously large mints of the stablecoin, which have caused the market capitalization to increase rapidly. These allegedly flowed directly to crypto exchange Binance, which is now running a no-fee promotion on TUSD trading pairs. Since the discontinuation of its own BUSD stablecoin, TUSD has enjoyed great popularity on Binance. For example, to deposit collateral or to participate in token launch events.
By July 8, the stablecoin could now see $590 million in selling pressure as users unlock their rewards in the token launch pools. A chain reaction may occur over the next few days and TUSD may collapse. So until there is clarity about its reserves and remaining banking partners, crypto investors will need strong nerves again.
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