Tron’s USDD, which was initially launched as an algorithmic stablecoin, has adjusted its operational model to avoid a collapse similar to Terra’s UST. Justin Sun’s Terra-like stablecoin USDD, which was created as an algorithmic stablecoin, is now shifting gears to a hybrid model with better transparency.
According to data from Tron DAO, the group responsible for USDD collateral maintenance, the USDD is now apparently over-collateralized, with a collateral ratio of 226.1%.
The USDD team also pledged a minimum collateral ratio of 130 %, which it said was higher than MakerDAO’s DAI stablecoin’s collateral ratio of 120 %.
On MakerDAO, the collateral ratio might be significantly greater depending on the asset used to mint more of the stablecoin. The range for borrowing DAI using Ethereum is between 130 and 170 %.
USDD is backed by 14,040.6 Bitcoin, 240 million USDT, and about 1.9 billion Tron (TRX), the Tron ecosystem’s native token.
Signatures on block explorers can be used to verify the backing
“Congratulations to USDD on becoming the first over-collateralized decentralized stablecoin!” tweeted Justin Sun, the creator of USDD. “A total of R21 billion of assets are backing the 667 million USDD in circulation.”
Tron (TRX), the Tron ecosystem’s native token, is up 5.21% in the last 24 hours and is currently trading at R1,29 per token, according to CoinMarketCap statistics.
The USDD-TRON dollar peg is managed by smart contract-based arbitrage algorithms.
If the USDD price rises above the dollar peg, investors can always exchange one USDD for one TRX. Users can profit from keeping the coin at its dollar peg by selling newly created TRX, and vice versa.
This identical approach, however, proved inefficient with UST.
It’s also the main reason why the Tron DAO has decided to change the way its stablecoin works.
“This has been in the plan, but Terra/Luna definitely accelerated and prioritized this for our team” tweeted Justin Sun, the creator of USDD. “We want to have USDD to be overcollateralized.”
To maintain its dollar peg, USDD has now integrated bits of collateralized stablecoins as well as algorithms.
What exactly is the USDD?
USDD, which was launched on May 5, is very similar to Terra’s stablecoin UST, an algorithmic stablecoin governed by smart contracts with no collateral backing.
Last month, UST plummeted, erasing nearly R925 billion in investor wealth in less than a week. Since then, algorithmic stablecoins, like USDD, have been extensively criticized.