Thanks to the returns offered by its algorithmic stablecoin, the Tron (TRX) blockchain comes in at 3ᵉ place, according to total locked value (TVL) in decentralized finance (DeFi). However, there are several things that remind us of the craze around Terra (LUNA), before its collapse.
Tron ecosystem joins the DeFi podium
According to data from DefiLlama, Tron (TRX) is now the 3ᵉ blockchain of decentralized finance (DeFi) in terms of total locked value (TVL). This TVL is currently around $6 billion and has grown by 50% in the space of a month.
USDD, the new algorithmic stablecoin in the ecosystem, is no stranger to this growth. In fact, it is possible to generate more than 20% returns with it, by collateralizing it on the JustLend protocol.
JustLend is the main application of this ecosystem and allows to make loans and borrowings in the manner of Aave (AAVE). Incidentally, the protocol alone capitalizes 50% of Tron’s TVL in DeFi.
Like a sense of déjà vu
Algorithmic stablecoin and 20% returns obviously remind us of the now defunct UST on the Terra blockchain (LUNA) with the Anchor protocol. By the way, these returns are mainly generated by liquidity mining, i.e. financial incentives to get us to deposit our liquidity.
While the provision of USDD is supposed to offer only 3.31% annual returns, the additional incentives increase these to 23.54%. We can therefore legitimately wonder what will happen when these incentives tend to diminish, as was the case on Anchor, some time before Terra’s collapse.
Moreover, there is no guarantee that the USDD would be more robust than the UST in case of loss of anchorage, given that its operation also includes a very similar arbitration system. An arbitrage that failed to play its role in the face of speculation during the fall of the UST.
Nevertheless, it is interesting to note that investors seem to keep a cautious approach for the moment. Indeed, out of the $3.2 billion deposited on JustLend, the amounts borrowed represent only 10% of this sum, which implies a measured risk-taking.
A limited ecosystem in its offer
While it is possible to compare the risks of USDD to UST, it is necessary to put it into perspective. The Tron blockchain is certainly 3ᵉ, but its TVL is 5 times lower than Terra was on its April highs. Ethereum (ETH), meanwhile, remains far ahead at $72 billion.
Still according to DefiLlama, the ecosystem founded by Justin Sun has only 8 different applications and the current performance does not bode well for its long-term sustainability, especially given the current market situation.
It is also worth remembering that the USDD, which has given a new interest to this blockchain, was created by surfing on the popularity of the UST at its peak. Let’s hope then that it does not meet the same fate. Because although the systemic consequences would probably not be as pronounced, authorities around the world would be sure to take one more example in their regulatory discourse.
