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TRON Founder Talks Up New Algorithmic Stablecoin, Despite LUNA Crash

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In Brief

  • TRON founder Justin Sun still believes in algorithmic stablecoins.
  • He believes that LUNA grew to a market cap that was too large to be sustainable.
  • He cites reasons TRON's USSD stablecoin mitigates LUNA's problems, including a reserve backed predominantly by other stablecoins.
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TRON founder Justin Sun touts an algorithmic stablecoin reserve strategy to prevent TRON’s new stablecoin USSD from crashing like LUNA.

Tron founder Justin Sun, famous for canceling a breakfast with Warren Buffet, talked up his new stablecoin, USDD, as Terra (UST) capitulated this week.

“I still believe in algorithmic stablecoins,” he said in a Zoom interview. “ I think the failure of LUNA was not because algorithmic stablecoins are not viable or are not doable…We can’t blame the algorithm just because LUNA failed.”

Introducing an algorithmic stablecoin

Sun, who last month announced that Tron DAO, the user-controlled organization that makes governance decisions about the network, would begin issuing a decentralized stablecoin backed by TRX.

USDD, according to Sun, won’t operate like traditional ones, such as Tether (USDT) and Circle’s USD Coin (USDC) – but rather, as an algorithmic stablecoin such as TerraUSD (UST) and Frax Finance (FRAX).

“When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralized system and receive 1 USDD,” Sun said.

Sun responded by saying that TRON designed USDD to have a smaller market cap than its native token, TRX, and to be smaller than the Tron DAO Reserve.

LUNA’s pitfall, he said, was that they grew to a large market cap in a short space of time. USSD’S market capitalization hovers around the quarter of a million-dollar mark, a far cry from the market caps of $77 billion and $51 billion of Tether (USDT) and USDC, respectively.

Sun said that the Tron DAO reserve would hold TRX and BTC to collateralize their decentralized stablecoin, together with $10B in USDT, USDC, BUSD, DAI, and TUSD. According to the stablecoin’s whitepaper, the stablecoin would maintain its peg by converting 1 USSD TO $1 worth of TRX or burning $1 of TRX to create one USSD.

TRON is offering 30% risk-free yields for staking USSD, a process where users “stake”  or lock up USDD for the opportunity to validate a transaction on the blockchain and simultaneously earn returns on the USSD, similar to an investment account at a bank that accrues interest over time.

Sun admits that this offer is a marketing ploy to reward early adopters. “It’s basically a marketing strategy, right? You get everybody involved to participate in the growth of the stablecoin,” he said.

Sun’s controversial backstory

Sun has been a controversial figure over the years, with Sun fighting back against many claims that have insinuated allegations of fraud and insider trading.

Launched in 2017, TRON eventually

He founded TRON back in 2017, introducing a TRX coin via an initial coin offering (ICO), which sold for $70 million, just before China banned ICOs. After hiring a former SEC compliance employee, David Labhart, he launched BitTorrent Token (BTT) via an initial coin offering, which has since drawn criticism for mirroring Terra’s LUNA.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...