Tron ‘Over-Collateralizes’ Its USDD Stablecoin to Avoid Terra-like Collapse

UTC by Bhushan Akolkar · 3 min read
Tron ‘Over-Collateralizes’ Its USDD Stablecoin to Avoid Terra-like Collapse
Photo: H.E. Justin Sun / Instagram

Tron accelerates its plan to collateralize its native USDD stablecoin. Tron will use three separate crypto – Bitcoin, USDT, and TRX – as a way to diversify their reserves.

Last month’s collapse of the Terra ecosystem sent shockwaves all across the crypto space. Learning some of the key important lessons from the collapse of Terra’s algorithmic stablecoin UST, the Tron blockchain network is initiating key measures for its USDD stablecoin.

On Sunday, June 5, Tron announced the plan of increasing the reserve amount for the USDD stablecoin. Currently, the USDD supply in the market stands at $688 million. Yesterday, Tron announced that it will be trying to maintain a minimum collateral ratio of 130%. But as per the Tron DAO Reserve website, USDD had a collateralization ratio of 218% as of today morning, June 6.

Also, the TDR website shows that Tron currently has reserves in three cryptocurrencies – Bitcoin, Tether, and TRX. Overall, it has more than $1.4 billion in assets backing Tron’s algorithmic stablecoin USDD. As said, the development just after the recent collapse of the Terra ecosystem eroded over $60 billion in investors’ wealth. Speaking to Bloomberg, Tron founder Justin Sun said:

“This has been in the plan, but Terra/Luna definitely accelerated and prioritized this for our team. We want to have USDD to be overcollateralized, which I think will make market participants more comfortable about using us in the future.”

The Trouble for Algorithmic Stablecoins

Post the collapse of the Terra UST stablecoin, the troubles for the algorithmic stablecoins have surfaced in the open. Popular crypto veterans like Vitalik Buterin and many others don’t consider algorithmic stablecoins as a sound model.

Although algorithmic stablecoins are supposed to stay at $1, they can depeg fast, as seen with UST. Apart from Terra, other algorithmic stablecoin have also faced similar issues. This includes names like Basis and Neutrino.

Last month’s Terra’s implosion also raised doubts about Tron’s USDD stablecoins. As a result, it seems the team behind Tron is taking swift measures to address market concerns. Tron founder Justin Sun said:

“We want to upgrade USDD to a hybrid model. So on the one side we have an algorithmic stablecoin — an algorithm to make the stablecoin stable — on the other hand we have TRON DAO Reserve.”

The Tron founder has also said that USDD is planning to raise a total of $10 billion as a reserves. Even Terra was planning to raise $10 billion worth of Bitcoin reserve. But in the mid-way it had to sell all of its $3.5 billion worth of accumulated BTC. Despite this, the Terra couldn’t save UST from collapsing.

Defending their position, the Tron founder said: “The reserve backing we’re using right now is highly diversified. It includes bitcoin and all different kinds of stablecoin. USDC [Circle’s stablecoin] will be a part of our reserve, but it will only be a small part of our reserve. All the Bitcoin addresses will be signed by signature so everybody will know those bitcoins belong to us”.

“Tron DAO will be very active in the market and less predictable. You make the market feel comfortable, but without telling too much information,” added he.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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