- When Tron DAO Reserve erased over $750 million worth of bitcoin backing the USDD stablecoin on Wednesday, Tron creator Justin Sun encouraged customers not to panic.
- Launched in 2022 as a rival to Terra’s since-defunct UST token, the algorithmic stablecoin is currently predominantly supported by TRX, the native currency of Tron.
- Concerns regarding the decentralization of USDD have been raised by the move.
After removing over $750 million worth of bitcoin backing the USDD stablecoin on Wednesday, Tron founder Justin Sun is reassuring users that they shouldn’t be concerned. Launched in 2022 as a rival to Terra’s since-defunct UST token, the algorithmic stablecoin is currently mostly supported by Tron’s native token.
With a long-term collateralization rate above 300%, Sun claimed that USDD was not capital efficient, which explains why TRON DAO Reserve, the organization in charge of managing USDD’s collateral, withdrew over 12,000 of it.
With regard to the decentralized stablecoin USDD, its workings are transparent and resemble MakerDAO’s DAI. Sun stated in a statement on the social networking platform X that any collateral holder can withdraw any amount freely without anyone’s approval when their collateral exceeds the amount specified by the system, which is often between 120% and 150% depending on the vault.
The latest shift in approach raises new issues and worries about the algorithmic stablecoin, especially those related to its decentralization and Sun’s power. Though a decentralized autonomous organization (DAO) is meant to oversee USDD from its launch in 2022, very few decisions pertaining to the stablecoin have been submitted to a community vote.
Users of X observed that Justin Sun’s personal account, not the Tron DAO Reserve, was the source of the notification regarding USDD’s collateral. Furthermore, the use of burned TRX tokens is the sole issue on which DAO members have voted thus far, and that will be in May 2023.
The Moody’s of stablecoins, Bluechip, gave USDD the lowest stablecoin stability grade last year, pointing out in particular the cryptocurrency’s excessive reliance on TRX and lack of transparency. For USDD, there is no regulating body. According to its analysis, there is no legal or code-based protection for holders of USDD, making them defenseless against Tron DAO Reserve.
USDD is the seventh-largest stablecoin and one of the top 100 cryptocurrencies with a market valuation of about $744 million. With $1.7 billion in reserves consisting of USDT and TRX tokens, it has a collateralized ratio of more than 230%, meaning that it is backed by twice as many assets as there are stablecoins in use.
However, just over 53% of USDD is collateralized, according to Bluechip. This is partly because Huobi, a cryptocurrency exchange backed by Justin Sun, also claimed ownership of the address where USDD’s previous bitcoin reserves were kept. According to the research, almost all of USDD’s reserves were stored in a multi-sig instead of the USDD smart contract, making it simple to transfer the assets.
A 2022 FAQ article by USDD’s DAO states that there is no substantial correlation between price volatility in TRX and the price stability of USDD. As a result, holders of USDD are encouraged to maintain their composure and avoid falling for market rumors.
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Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
