Despite recent efforts by the Tron DAO to overcollateralize the token, Tron’s algorithmic stablecoin USDD appears to be in crisis.
During the market turmoil, the theoretically stable USDD token lost its peg to the US dollar. The coin is now trading for $0.98, according to reports. TRX also fell more than 25% from June 13-14, raising fears that the token is on the verge of its death spiral.
The native network token of Tron, TRX, can be similarly redeemed for USDD. Tron initially provided USDD stakeholders with yearly “risk-free” dividends of 30%; however, that percentage was later lowered to 10.9%. Furthermore, the token’s algorithmic backing was strengthened with an allegedly overcollateralized model to prevent it from going into a death spiral.
In reaction, Tron stepped in to defend TRX and USDD.
Digging Curve 3 pool
There is a notion that it is crucial to restoring the liquidity ratio in the curve where USDD is a decentralized exchange (DEX).
When trading stablecoins, a problem called “slippage” causes a gap between the target price and the actual price. Curve is a DEX that eliminates these phenomena and encourages the development of new stablecoins.
A liquidity pool is provided through USDD’s connection to the curve 3 pool. US Dollar Coin (USDC), Dai (Dai), and USDT make up Curve 3 Pool (Tether).
Moreover, when comparing the composition ratio of the USDD-Curve 3 pool, the USDD represents 85.86%, while the Curve 3 pool represents 14.14%. Therefore, the USDD-Curve 3 pool receives liquidity from curve users in a ratio of 1:1, which creates an imbalance.
The high USDD-to-Curve 3 pool ratio indicates that curve users added more to the pool and removed more.
According to Undefined Labs CEO Mo Jong-woo, “Curve users who wanted to minimize their losses moved their USDD to a stable 3-curve pool when the price of USDD fell. It looks like the (USDD) rate will need to be reversed from the curve itself.
Master plan
Following the acquisition of the reserve, Tron Dao Reserve declared that it would give Binance 100 million USDC (129.1 billion won) to receive TRX. This is because TRX backs the value of USDD, and if the market accumulates TRX on a large scale, it is interpreted as an expectation that TRX’s price will grow and that the USDD price would follow suit.
“If USDD fails, Tron may also fail,” CEO Mo said. “So USDD (FUD) becomes less of a problem.”
Since June 5, Tron Dao Reserve has routinely disseminated collateral requirements and ratios in real-time. According to Tron Dao Reserve, the USDD “maintains a collateral ratio of above 200 percent,”.
The reserves of 14,040.6 BTC, 140 million USDT (Tether), 1 billion USDC, 1.96 billion and 176 TRX (Tron) that make up the Tron Dao reserve are burned along with the 8,968,56,087 TRX when the USDD is issued.
Therefore, the collateral ratio is 310 percent when converted to the value, which equals $2,146,93,459. (about 2.9 trillion won). The 100 million USDC sent to Binance on the 15th had not yet been shown on the Tron Dao Reserve website.
