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

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 13^th spot with respect to mar­ket cap, up 11 places from the 24^th 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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