key takeaways
- TRON’s USDD has extended its slide below $1. It has been trading below peg since last one week.
- USDD briefly hit $0.93 over the weekend, despite various interventions from the TRON DAO reserve over the past few days.
- The USD is not unlike the UST, Terra’s algorithmic stablecoin that blew up in spectacular fashion last month.
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The TRON stablecoin has been tracking the USDD dollar price, but it has struggled to maintain its peg over the past week.
TRON Stablecoin Facing Depeg Issues
TRON’s stablecoin is proving that it’s not all that stable.
USDD traded as low as $0.93 on Sunday, extending a slide that moved the algorithmic coin beyond its intended $1 price. Although it has since returned to $0.96, it has been trading away from its peg since last week. The TRON DAO Reserve responded to the initial dip on June 13 by deploying $2 billion to help restore its price, but that plan failed after USDD plummeted. reserve then announced plans to withdraw 3 billion TRX tokens from a host of unknown crypto exchanges and DeFi applications on June 16 “to protect the overall blockchain industry and crypto market” and bought today 10 million USDD with the same mission statement, but no move has successfully restored the peg.
Events recall Crypto’s headline story from just a month ago, when Terra’s UST, another algorithmic stablecoin held in balance by a different volatile token, collapsed in the space of a few days, almost from the ecosystem. wiped out $40 billion worth and sent shockwaves. through the entire industry. The Terra crash was described as a dark moment for the space and those responsible for promoting the project, namely TerraForm Labs and its outspoken CEO Do Kwon, are facing multiple lawsuits as a result.
USDD functions in much the same way as UST did and was launched during the peak terra frenzy. To achieve its dollar value, it relies on an arbitrage mechanism that UST and Luna used until the recession. Arbitrators can burn $1 worth of TRON TRX tokens to mint USDD or burn 1 USD for $1 worth of TRX, ensuring that USDD always trades for around a dollar. USDD made bold promises of “financial freedom” and “zero-risk” yields to lure users upon launch, and TRON quickly saw gains as it became the third largest DeFi network by total value locked in terms. Although it experienced slight volatility in its first month, it faced its first real stress test last week.
Tron DAO Reserve currently holds $2.3 billion in collateral in TRX, BTC, USDT and USDC for 723.3 million USDD, meaning the over-collateralization ratio is around 325%. Nevertheless, several other algorithmic stablecoins have failed prior to USDD, and the seven-day dpeg event indicates that the product is not working as it was supposed to.
Disclosure: At the time of writing, the author of this article holds USDT, ETH, and several other cryptocurrencies.