In an effort to improve the transparency of its new algorithmic stablecoin, Tron has revealed details of the collateral strategy for the new coin.
The strategy behind the USDD
To avoid a TerraUSD-like situation that led to the disappearance of $60 billion, the Tron Foundation has put safeguards in place to consolidate its new algorithmic stablecoin, USDD.
According to the Tron DAO and CoinGecko Reserve website, the new stablecoin’s $688 million market cap is 217% guaranteed, while Tron unveiled a minimum guarantee ratio of 130% this Sunday, June 5.
“We already had plans for collateral,”
says Tron founder
Tron founder Justin Sun confirmed that plans to overcollateralize the USDD were in place before the TerraUSD collapse, but that this event moved them up the priority list. “We want the USDD to be over-collateralized, which I think will reassure market participants that they can call on us in the future,” Sun said.
Part of the collateral is Tron’s native token, TRX, Tether (USDT) and Bitcoin (BTC), which total $783 million. Other assets make up the $1.37 billion total collateral, still short of the $10 billion originally pledged on April 21, 2022, which Sun hopes to eventually raise.
USDD uses the Tron Foundation’s native TRX token to maintain its peg, which is thanks to what Justin Sun calls a superior algorithm to Terraform Labs’, which led to TerraUSD’s loss of peg. “When the USDD price is below $1, users and arbiters can send $1 USDD to the system and receive $1 from TRX,” Sun said in a letter posted on his website.
The TRX price performed well during the first few days of USDD. CoinGecko’s price data puts it in 13th place in terms of market capitalization, up 11 places from its 24th position at the end of April.
Predictable buying and selling caused UST’s fall
Justin Sun claims that one of the weaknesses of the Luna Foundation Guard, a reserve designed to guarantee and maintain the anchoring of the TerraUSD stablecoin, lay in its highly predictable method of buying and selling Bitcoin.
According to Tron’s founder, this made it vulnerable to attack, although it remains unclear whether the loss of stablecoin parity was a coordinated attack. Investigations by Nansen, a blockchain research firm, indicate that the Celsius network played a role in the loss of the peg, which Celsius disputes.
In addition, critics urge not to give too much credence to Sun’s claims that the Tron DAO Reserve, also established to maintain the USDD’s peg, serves a similar function to the U.S. Federal Reserve.
“The announcement should be seen as a discussion starter rather than a real solution,” Brian Pasfield, CTO of Fringe Finance, told Be[In]Crypto. “Justin Sun is known for making earth-shattering statements, and his (and TRON Network’s) reputation will not allow him to lead this kind of project.”
