Excellent John K. Kumi is a cryptocurrency and fintech enthusiast, operations manager of a fintech platform, writer, researcher, and a huge fan of creative writing. With an Economics background, he finds much interest in the invisible factors that causes price change in anything measured with valuation. He has been in the crypto/blockchain space in the last five (5) years. He mostly watches football highlights and movies in his free time.
According to Dustin Teander, an analyst at digital asset data platform Messari, USDD is mechanistically similar to UST in terms of minting and price stability.
The $30 billion Terra ecosystem recently crashed down, creating a mass panic sell in the market. This caused almost all the cryptos breaking their key support points to record over 80% and 90% fall from their all-time highs. Interestingly, Justin Sun, the founder of Tron, last month announced that his blockchain will create its algorithmic stablecoin – USDD. This project has been criticized by analysts including Dustin Teander, an analyst at digital asset data platform Messari. According to Teander, USDD is mechanistically similar to UST in terms of minting and price stability.
Just like UST, the USDD will be pegged by the minting or burn process. Meaning, one USDD would be converted to $1 of TRX. Also, $1 of TRX would be burnt to mint one USDD.
“When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralized system and receive 1 USDD,” Sun explained.
Its operation is similar to that of Terra’s UST, and a bit different from the traditional ones like Tether’s USDT and Circle’s USDC. Following the agitations and concerns surrounding the failure of UST, Sun, in an interview, stated that he still believes in algorithmic stablecoins. According to him, it is unfair to blame algorithm because Luna failed. Besides, the failure was not because these kinds of stablecoins are not doable or viable. He explained Luna failed because its market cap grew largely within a short time. Also, it used too much leverage, the reason they did not have enough money in their reserve to recover when the market collapsed.
“The Luna Foundation Guard] needs at least $10 billion to rescue the market and prevent the depeg from happening. That’s why leverage is dangerous” Sun said.
He assured that this can never happen to USDD as its reserve has different layers. Tron Founder also disclosed that they have stablecoins which can be deployed immediately after something bad happens. This will give them enough time to liquidate other assets if there is a need.
USDD would not suffer the same fate because its market cap is around a quarter of a million dollars. This is unlike Tether (USDT) which has a market cap of around $77 billion and Circle (USDC) with around $51 billion market cap. USDD is also said to be smaller than Tron’s native token (TRX), and that of Tron DAO Reserve.
Sun also announced that Tron is offering a 30% risk-free yield for staking USDD. He admitted that this is a marketing strategy to reward early adopters.
“It’s basically a marketing strategy, right? You get everybody involved to participate in the growth of the stablecoin,” he said.