Despite the crash of the $UST stablecoin in May 2022, TRON, is going ahead with $USDD, the latest decentralized stablecoin that is pegged to the dollar.
TRON copied the burn mechanism that grew wildly successful for Terra whereby users redeem one $UST stablecoin for the native coin, $1 of $LUNA. Similarly, users burn $1 of $TRX in exchange for the right to mint 1 $USDD.
However, according to Justin Sun, TRON’s founder, $USDD has picked up lessons from UST’s fall. The key problem behind $UST, according to Sun, was that, ‘despite the LUNA Foundation Guard’s best efforts, a majority of UST’s collateral consisted of $LUNA, a highly volatile asset, and less than 15% of $UST was collateralized by Bitcoin ($BTC).
For $USDD, TRON is building a reserve composed of fiat-reserved stablecoins such as $USDT and other volatile assets which are held across multiple exchanges. The TRON DAO Reserve plans to ensure $USDD is always over-collateralized by a basket of fiat-collateralized stablecoins (e.g., $USDT and $USDC) as well as Bitcoin ($BTC) and TRON ($TRX), among other assets.
TRON intends to maintain a collateral ratio of at least 130% to safeguard USDD’s peg:
“In other words, every $USDD is supported by atleast $1.3 worth of $BTC, $TRX, stablecoins, and potentially other highly liquid assets.”
– TRON Foundation
Currently, the reserve holds the following amount in stablecoins:
10, 500 $BTC
$240 million $USDT
$1.9 billion $TRX
According to Sun:
“The $10 billion reserves pledged by the TDR will enable $USDD to become the most reliable decentralized stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers $USDD a very strong safety net”.
– CEO / Founder, TRON
Terra’s growth was unsustainable because much of it was driven by the Anchor protocol which drove people to mint $UST, says Sun. By the time Terra began to diversify and bolster its reserve with $BTC, it was too late. The reserve consisted of just $3 billion of $BTC at its peak, hardly enough to collateralize the nearly $19 billion+ in $UST supply.
Initially, users will get 30% APR for staking $USDD across several platforms, including Curve.
TRON however intends to put a cap on the amount of the stablecoin that can be minted, and eventually cut down rewards for short time users as part of the strategy to enable sustainable growth.
So far, $USDD has been circulating on the following protocols: