Tron’s algorithmic stablecoin USDD appears to be in trouble despite recent moves from the Tron DAO to overcollateralize the token.
The supposedly stable USDD token lost its peg to the U.S. dollar amid market turmoil. According to CoinGecko, the token is now changing hands for $0.98. TRX also slumped more than 25% in 12 hours from June 13 to June 14, sparking fears the token may be on the verge of its own death spiral.
USDD is not the only stablecoin to slide below $1 as the markets sold off. Top centralized stablecoins Tether (USDT) and USD Coin (USD Coin) dropped to $0.995 and $0.099 respectively, while leading decentralized stable token DAI oscillated between roughly $0.99 and $1.02 during the market carnage.
Binance USD and TUSD also bounced between less than $0.99 and $1.02, while USDN last changed hands for $0.96, and VAI is trading for just $0.945.
USDD is Tron’s answer to Terra’s notorious failed algorithmic stablecoin, UST, which offered roughly 20% annual yields when deposited into the Anchor protocol. UST’s yields were subsidized by a reserve, and redemptions were paid in $1 worth of Terra’s native LUNA token in a bid to incentivize arbitrageurs to defend its peg — a design that made the token vulnerable to the death-spiral that triggered the collapse of the Terra network.
USDD is similarly redeemable for Tron’s native network token, TRX. While Tron originally offered annual “risk-free” yields of 30% to USDD stakers, the figure was later reduced to 10.9%. The token’s algorithmic backing was also bolstered by a purportedly overcollateralized model to protect against it entering a death-spiral.
In response, Tron stepped in to protect both USDD and TRX.
On June 13, the Tron DAO Reserve tweeted that it had received 700M USDC to defend the stablecoins peg. Tron claimed the injection had increased USDD’s collateralization ratio to almost 300%.
Tron founder, Justin Sun, also posted that the funding rate for shorting TRX had surged to minus 500% amid the bearish price action. He said the Tron DAO Reserve would deploy $2B to “fight” the shorts, announcing that a “short squeeze is coming” and that he doubts leveraged TRX sellers will “last for even 24 hours.”
Many commentators have compared Sun’s moves to those of Terra founder Do Kwon. In May, Kwon scrambled to reassure Terra’s community as prices of LUNA and UST began to crumble. SafuXBT posted “deploying more capital – steady lads” at Sun, a direct quote from Kwon.
Twitter user resdegen asserted that the token is only 92% collateralized, adding that the $140M USDT Tron counts among its collateral is in fact jUSDT — USDT that has been deposited into the Tron-based yield protocol JustLend.