On June 15, stablecoin USDD USDD/USD broke its peg to the U.S. dollar and touched $ 0.9582. Consequently, Tron TRX/USD fell to $ 0.048.
What Happened: Tron’s native stablecoin USDD works as an algorithmic stablecoin while being collateralized by Tron, Bitcoin BTC/USD and Tether USDT/USD. With a circulating supply of $723 million, Tron founder Justin Sun had recently ensured USDD to be collateralized with $1.37 billion USD worth of Tron, Bitcoin and Tether.
On June 13, USDD de-pegged to $0.97 and on June 15, it further fell to $0.958. In response to this de-peg, on June 13 the Tron DAO injected an additional $700 million of USD Coin USDC/USD to protect the peg. Another $500 million worth of USD Coin was deployed today, June 15, by the DAO to further protect the peg.
Why It's Important: Following the recent crash of Terra LUNA/USD, stablecoins across the world are under sharp scrutiny for their underlying algorithms and tokenomics. Thus, Sun and the Tron DAO must protect the USDD peg against external parties and intrinsic shortcomings.
According to Nansen, Oapital, a major fund that profited off Terra’s stablecoin UST/USD de-pegs, has initiated large-scale transfers in USDD. USDD’s collateralized reserves majorly serve to protect its peg.
Sun initially promised to maintain a collateral ratio of 226%. However, a recent report by Coin Telegraph indicated prior to June 13, that including Tron, USDD held a 92% collateralized reserve ratio and without Tron, the collateralized reserve ratio was only 73%.
An under-collateralized ratio makes a stablecoin vulnerable to manipulation and de-pegs. Thus, as the DAO continues to deploy funds and build the collateral reserves, USDD must protect its peg to retain investor confidence. On-chain data currently indicates USDD to hold a 315% collateralized ratio.
Photo: Praveen Nanu via Shutterstock
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