Bad times for algorithmic stablecoins. Tron’s USDD, which had been criticized for looking a bit too much like Terra’s defunct UST, seems to follow a similar path. It still hasn’t re-established parity with the dollar, even though the teams were trying to avoid a “depeg” last week.
The limitations of the Tron USDD
Last week, we explained that Tron’s USDD stablecoin, which runs on an algorithmic system, feared it would meet the same fate as Terra’s UST. As a reminder, both of these “stable” cryptocurrencies were originally meant to maintain a $1 price through a “burn” mechanism. For USDD, this relies on TRX, the native currency of the Tron network.
If this system seems familiar, it’s not for nothing, it was inspired, or even simply copied, from Terra, and it can therefore potentially experience the same pitfalls. To avoid this, the project teams had announced last week that they were adding 700 million USDC to the USDD reserve to prevent loss of anchorage.
But already, loopholes had been noted. The USDT used alongside the USDC to back the stablecoin were deposited on JustLend to generate yield. Moreover, the fall in prices directly impacts the reserve, which mechanically loses value. This is enough to fuel suspicions, which for the moment seem to be justified.
Tron’s USDD still below a dollar
Indeed, a week later, the USDD has still not restored parity with the dollar, far from it. Based on data aggregated by CoinGecko, Tron’s algorithmic stablecoin is now hovering around $0.96, after dropping to $0.93 two days ago.
If we go to the Tron DAO Twitter account, we notice that the pinned tweet is still the same since June 17. To the question “Is the USDD depegged?” he replies:
“No. USDD is a decentralized stablecoin that relies on an on-chain mechanism and collateralized assets, unlike centralized stablecoins like USDC.”
No other explanation of this “depeg” will be found. Yesterday, a terse message from Justin Sun informed the community that the Tron DAO Reserve had purchased 10 million USDD in order to “protect the blockchain industry as a whole and the cryptocurrency market.”
Still, for now, USDD is still worth less than a dollar. If he succeeds in restoring parity, he will then have to tackle a huge new task: regaining the confidence of investors particularly scalded by the Terra case.
