Following the aftermath of the collapse of the Terra (LUNA) ecosystem and its UST algorithmic stablecoin, the Tron (TRX) blockchain has decided to revise the way its USDD, which was based on the same structure, was secured. The USDD will now be “over-collateralised” by at least 130%, including USDT and Bitcoin (BTC).
TRON’s USDD now over-collateralised
While the shadow of the UST failure still loomed over the USDD, as the 2 stablecoins operate through a similar algorithmic structure, TRON (TRX) reviewed its model and decided to over-collateralize the USDD in order to avoid suffering the same fate as Terra (LUNA).
USDD has officially upgraded to be the first over-collateralized decentralized StableCoin! Currently collateralized at over 200% with a guaranteed minimum collateral ratio of 130%!
USDD will lead the way into a new era for stablecoins as it grows.https://t.co/a692Pb20Tt
– USDD (@usddio) June 5, 2022
USDD arbitrage is provided by the TRX, the native token of the Tron ecosystem, in the following way: when the USDD deviates from its peg (benchmark) of 1 dollar, the automatic stabilization mechanism is triggered.
If the USDD falls below its $1 value, then USDD will be exchanged for $1 of TRX to be burned, which will cause the number of USDD units in circulation to fall. However, the recent cataclysm caused by the LUNA and UST downward spiral has shown us that this model has major flaws.
All these are reasons for Tron to review the structure of the USDD in order to take the lead, but also to (re)gain the confidence of investors. While the number of USDDs currently in circulation represents around USD 668 million, they are currently collateralised (insured in equivalent reserve) up to 225% with this new model.
According to the Twitter announcement, Tron’s new policy is to collateralise USDD at a minimum of 130% based on a new strategy
A hybrid reserve strategy
According to the website of Tron DAO, the organisation responsible for securing the USDD peg, stablecoin will now be newly secured (at present) with 14,040 Bitcoin (BTC), 240 million USDT, and about 1.9 billion TRX, which is about $146 million at the current price.
Justin Sun, the founder of Tron, was quick to celebrate the event on Twitter:
“Congratulations to USDD on becoming the first decentralised over-collateralised StableCoin! Real-time collateral ratio is now over 200%! A total of $1.37 billion in assets backs the 667 million USDD in circulation. “
In an interview with Bloomberg, Justin Sun said that the change in USDD strategy was already in the works, but that the events surrounding Terra precipitated the decision making:
It was [already] part of the plan, but Terra/Luna definitely accelerated and prioritized it for our team. We want USDD to be over-collateralised, which I think will make market players more comfortable using us in the future. “
The TRX has been seeing gains since June 4, with a current price of $0.08, amidst a still generally uncertain market environment. The TRON token currently sits in 13th place among cryptocurrencies in terms of market cap, with $7.6 billion.
TRX 4-day price
The USDD, on the other hand, is in 9th place on the stablecoin podium, behind Neutrino’s USDN and ahead of the EIF.
It remains to be seen how the market and the community will react to the news, which will objectively bring additional security to an algorithmic system that seemed to be flawed by its very nature.
