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TRON’s USDD Stablecoin Collateral Building Up to Prevent Repeat of Terra’s UST Stablecoin

2 mins
Updated by Ryan James
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In Brief

  • Tron DAO Reserve reveals the make-up of its USDD collateral.
  • The collateral is $1.37B, still short of $10B promised by founder Justin in April.
  • Sun theorizes that TerraUSD's collapse was partly due to the buying and selling patterns of the Luna Foundation Guard.
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In a bid to improve transparency surrounding its new algorithmic stablecoin, Tron has revealed details of its new coin’s collateralization strategy.

To avoid the situation with TerraUSD that saw $60B vaporize into thin air, the Tron foundation is putting in some guardrails to shore up its recently released algorithmic stablecoin, USDD.

According to the Tron DAO Reserve website and CoinGecko, the new stablecoin’s $688M market cap is 217% collateralized, while Tron disclosed on Sunday a minimum guaranteed collateralization ratio of 130%.

We already had collateralization plans, says Sun

Tron founder Justin Sun confirmed that plans to over collateralize USDD were in place before the TerraUSD meltdown, but that the meltdown moved it up on the list of priorities. “We want to have USDD to be over collateralized, which I think will make market participants more comfortable about using us in the future,” Sun said.

The collateral is partly made up of Tron’s native token TRX, Tether (USDT), and Bitcoin (BTC), which amount to $783M. Other assets make up the total of $1.37B, which is still below the $10B initially promised on April 21, 2022, which Sun hopes to eventually raise.

USDD uses the Tron Foundation’s native token TRX to help maintain its peg through what Sun claims is a superior algorithm to Terraform Labs’ that led to the de-pegging of TerraUSD. “When USDD’s price is lower than $1, users and arbitrageurs can send 1 USDD to the system and receive $1 worth of TRX,” Sun said in a letter published on his published website.

TRX has performed well during the early days of USDD. Pricing from CoinGecko places it in the 13th spot with respect to market cap, up 11 places from the 24th position at the end of April.

Predictable buying and selling caused Terra’s downfall

Sun claims one of the weaknesses of the Luna Foundation Guard, a reserve designed to collateralize and maintain the peg of the TerraUSD stablecoin, was that it had a very predictable method of buying and selling bitcoin. This, according to Sun, made it prone to attack, although the jury is still out as to whether the de-pegging was a coordinated attack. Investigations by Nansen, a blockchain research company, point to the Celsius Network as having played a part in the de-pegging, which Celsius disputes.

Furthermore, critics caution against lending too much credence to Sun’s claims that the Tron DAO Reserve, also set up to maintain the peg of USDD, performs a similar function to the U.S. Federal Reserve. “The announcement should be perceived as more of a discussion starter than the real solution,” Fringe Finance CTO Brian Pasfield, told Be[In]Crypto. “Justin is known for making hype statements and his (and TRON Network) reputation will not allow him to lead such kind of a project.”

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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,...