Tron‘s Algorithmic Stablecoin（USDD）Upgraded to Be The First Over-Collateralized Decentralized Stablecoin

2022-06-22, 03:28

TRON has taken steps to separate its recently launched algorithmic stablecoin, USDD, from the Terra ecosystem's unfortunate fate.

The global stablecoin industry took a slight hit after the UST and LUNA crash, as investors began to harbor doubts. A few stablecoins suffered a brief depegging shortly after Terra prices plunged to bottom levels, clearly resulting from the widespread user anxiety.

The affected networks quickly reassured users by being as transparent as possible and restructuring their operational model where necessary. These actions did help to curb the growing panic; however, tensions are still high across the crypto sphere, given the industry-wide slump.

Sentiments of mistrust, directed mainly at algorithmic stablecoins, continue to echo in the digital space, placing TRON's USDD in a tight position. However, according to the TRON DAO, the Network's decentralized dollar is now over-collateralized; its collateral ratio reportedly rests at a staggering 226.1%.

Keywords; TRON, Algorithmic stablecoin, USDD, Collateral

USDD's Steady Month-Long Progress

The algorithmic stablecoin went live at what could be described as an inauspicious moment.

Mere days before Terra's initial depegging, the event that triggered the Network's eventual spiral USDD was launched. This came after TRON had built up anticipation for over a month, and shockingly, USDD continued to expand regardless of the unfavorable environment for stablecoins, algorithmic stablecoins particularly.

USDD shares this crucial similarity to Terra's UST; they are both algorithmic stablecoins. These stablecoins are not collateralized but instead retain their peg through smart contracts. However, in the month since its May 5 release, USDD has racked up several significant achievements and currently stands as one of the global crypto industry's most prominent players.

USDD has only continued to evolve since it came onto the scene, working tirelessly to be the leading project in the Stablecoin 3.0 era.

It is worthy of note that post-crash, TRON founder Justin Sun was slammed with accusations that he had caused the UST depeg that brought record levels of devastation. However, he emphatically denied the allegations. "No, it was not me," he said in his interview.

USDD's Over-collateralization

Before this latest move, USDD did take steps to evade the dangerous ripples the UST crash had created. Sun assured investors that the TRON DAO reserve had plans to set aside $2 billion to deflect any attacks against the stablecoin, which notably seemed immune to the volatile market.

Additionally, Sun noted that the reserve held 10 billion USD; he also shared that the algorithmic stablecoin's total market cap rested at $271 million. Fast forward a few weeks, and USDD's total circulating supply is scaling $700 million.

In a June 5 publication, the news surfaced that USDD had remodeled and "upgraded" itself. Its status as the first overcollateralized decentralized stablecoin (OCDS) rendered it capable of offering swift transactions with the highest collateral ratio worldwide.

According to the blog post, USDD is collateralized at 200%; the $667M USDD supply is backed by assets worth roughly $1.37 billion. The real-time value, which is always available on the TRON DAO Reserve website, is 202.48% at writing time. Additionally, TRON DAO guarantees a constant minimum collateral ratio of 130%; this exceeds DAI's 120%, which is already seen as an ideal example.

Source; TDR Website

How does the Network Maintain this?

Beneath the new model, TRON DAO Reserve members can carry on minting USDD by burning TRX. However, USDD retains its stability and reliability by over-collateralizing the TDR assets. The reserve comprises BTC, TRX, and a handful of stablecoins such as USDT, USDC, TUSD, and USDJ.

Each USDD token is backed by a minimum of $1.3 worth of the reserve assets making for a collateral ratio of at least 130%. The TDR has expanded its reserves considerably to support the over-collateralization. Currently, it holds 10,500 BTC, 240M USDT, and 1.9B TRX tokens, in addition to the 8.29 billion TRX contained in the burning contract.

TRON is maintaining a high level of transparency, so the collateralization details are open to users via the on-chain contracts 24/7 and the collateral ratio.

Justin Sun tweeted his congratulations to the stablecoin Network, noting later on that this was always in the plan but the Terra collapse had hastened the move.

Source; Twitter @justinsuntron

The release also shared a statement from the TRON founder. Sun noted that USDD is the forerunner of the Stablecoin 3.0 phase and pointed out that the improved USDD would broaden the functions that tighten its stability.

He also shared that TDR's $10 billion reserve will push the algorithmic stablecoin to become the most dependable, decentralized asset of its kind with the largest collateral ratio "in blockchain history." Sun believes the current collateral margin provides USDD with solid security.

TRON Accused of Exaggerating Claims

According to one of the research company Proximity Labs' executives, the over-collateralization isn't all it appears to be. In a tweet, the exec dubbed Resdegen stated that the news was "technically false." He explained in his thread that calculating using the reserve value ($787M) and the USDD supply ($667M) resulted in a ratio of 118%, leading him to question how TRON had come up with 218%.

Further down, he noted that the Network considered the $8.29B TRX in the burn contract as collateral. He also pointed out that TRX is one of the reserve assets. According to Resdegen, it poses a significant risk, using the same token locked in USDD's arbitrage mechanism to make up 20% of the reserve. This mirrors UST's system before its downfall. Depending on how the TRX price moves, USDD could find itself in some hot water.

Source; Twitter @resdegen

Conclusion

There is some truth in Redegen's accusations of TRON being misleading; the math does add up. He believes the accurate collateral ratio should exclude the TRX burnt and the reserved tokens.

USDD is currently circulating on TRON, Ethereum, and BNB Chain. It is also listed on several popular exchanges such as Gate.io and others. There appears to be a remarkable amount of faith in this particular stablecoin, especially considering that it runs on one of the world's most extensive stablecoin networks.

TRON boasts over 95 million registered user accounts and stores over $55 billion worth of assets. It averages daily transactions scaling $10B across the Network. To date, the TRON DAO remains one of the largest Decentralized Autonomous Organizations globally.

Interestingly, the TDR has recently seen an influx of big names in the blockchain industry as whitelisted institutions. These include Alameda Research, Amber Group, Poloniex, Ankr, Mirana, Multichain, FalconX, TPS Capital, etc.

TRON has plans for the algorithmic stablecoin to make its way onto various ecosystems and top DeFi applications. USDD will take the first steps in a fresh age for stablecoins as it expands its supply and sees new users come on board. According to the Network's release, this will mark the start of the next phase of decentralization in the global digital space.

Author: Gate.io Observer: M. Olatunji
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