Tron’s algorithmic stablecoin slips further from its dollar peg


Tron’s algorithmic stablecoin, called Decentralized USD and known by its ticker USDD, slipped further from its peg to the dollar on Tuesday in a sign of ongoing stress in crypto markets. 

USDD dipped as low as $0.974 this morning before recovering to $0.979 at the time of writing, according to CoinGecko data.

USDD is trading under a dollar even after TronDAO, which oversees the stablecoin, injected another $700 million worth of USD Coin (USDC), a centralized stablecoin issued by Circle, to defend its peg.

TronDAO claims there is a 300% collateral ratio backing USDD’s value. This means the DAO would need to hold about $2.1 billion worth of assets in bitcoin and tron — as well as stablecoins like USDC and tether (USDT).

Still, the de-peg has sparked worries that USDD, which has a market capitalization of just over $700 million, may suffer from the same fate as TerraUSD (UST), an algorithmic stablecoin that inspired USDD.

UST collapsed in May, wiping more than $40 billion from investors’ pockets and sending shockwaves through the crypto market. 

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Crypto markets have had a tough start to the week, as bitcoin fell below $21,000 and lending platform Celsius was forced to stop clients redeeming funds from their accounts. 

USDD shares the same algorithmic model of mint and burn as UST. Whenever the price of USDD is below a dollar, the system allows you to burn one UST to get $1 worth of tron, the native cryptocurrency of the Tron blockchain. Conversely, if USDD’s price is above $1, one can burn tron to get USDD and help bring the price back to its dollar mark.

Furthermore, to attract more users, USDD pays about 18% to stake the stablecoin on a lending platform called JustLend, a similar amount of interest to that offered by UST via Anchor. 

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.



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