The founder of TRON, Justin Sun, said that several supporting assets and an over-collateralized reserve mean that USDD does not have the same vulnerabilities as Terra’s UST.
Justin Sun assumes that the Tron-native stablecoin USDD is inherently safer and more protected than Terra’s UST.
In early May, UST lost its dollar peg, which triggered a collapse of a pegging asset Terra LUNA. This collapse tore the entire crypto market with it and also led to many bankruptcies.
Since then, algorithmic stablecoins have had a very bad reputation. Despite the parallels between USDD and UST, which are both algorithmically coupled and have high APY returns, Sun argues that USDD is different.
In a recent interview with CoinGecko, Sun explained the differences between USDD and UST. He said that UST was completely dependent on LUNA.
As Sund explained to UST:
“LUNA is the token for the blockchain, you can use LUNA to coin VAT. But the problem for LUNA and UST is that they have only one correlation. The total VAT price is therefore 100% based on the LUNA price.”
Sun further said that this is not the case with the USDD, which uses a hybrid model taking into account other stablecoins on the market to ensure its price stability. This refers to the possibility of minting four different assets, including USDT and USDC stablecoins.
“We use all the stablecoins on the market to ensure decentralization. But at the same time also guarantee the security of the stablecoin.”
As KuCoin explains, USDD also works with a decentralized price oracle to estimate the USDD price. Superrepresentatives (SR), voting on the current rate in US dollars, support this mechanism.
The voting process requires the counting of votes and the calculation of weighted medians as corrections to exchange rate. SRs that vote within the standard deviation of the chosen median are rewarded, which creates an incentive for accurate voting among the SRs.
Then, similar to other algorithmic PEgging mechanisms, in cases where USDD exceeds $1, the protocol allows users to exchange $1 TRX (or other qualifying assets) for $1 USDD in order to benefit from the arbitration of the price difference. The additional USDD offer will lower the price while TRX will be burned.
Should USDD fall below $1, the reverse situation occurs in which users exchange 1 USDD for 1 USD TRX (or other assets), with the protocol burning USDD to reduce the supply, causing the price to rise towards $ 1.
In addition, Sun said that the collateralized assets supporting the USDD exceed the offer. This means that token holders can always liquidate in dollars.
“This offers market participants a very good equivalent value … At the moment, the total secured percentage for USDD is 300%, so it is very healthy.”
The website tdr.org shows the USDD offer with $ 747.4 million, with collateral consisting of TRX, BTC, USDT and USDC with a total value of $ 2.3 billion. This corresponds to a ratio of 307%.
In summary, Sun said that the mint burn mechanism is based on several assets, not just TRX, in addition to supporting an over-collateralized reserve, USDD is not like UST.
