USDD Is Depeg, Should Short TRON Or Not?

Many in the community are seeing TRX-USDD as the second version of LUNA-UST. However, this must be considered before misunderstanding that this will be a “big short” for TRON.

As of June 20, 2022, there were 14,000 BTC, 140 million USDT, and over 1 billion USDC, with a total value of about $1.5 billion – double the supply of 723 million USDD in the issue.

Thus, USDD is having collateral assets twice as high as outstanding assets. With that amount of assets, it is enough for TRON’s stablecoin to be priced at $2 instead of being depeg as it is now.

However, the USDD price is still deviating from the $1 mark and has not been able to recover.

And the price of TRX, although it fell on the news that USDD lost its peg, has returned to a stable price range of $0.06 – $0.065.

Since the collapse of LUNA, the community has started looking for similar algorithmic stablecoin projects to do a full short. However, a TRX “big short” is unlikely, at least for the time being.

Here are some key differences between TRON’s stablecoin and UST:

USDD does not have a mint-burn mechanism like UST

Because to avoid going in the same footsteps of LUNA-UST, USDD was born with many improvements. One of the biggest differences is that not everyone can mint this stablecoin like with LUNA-UST.

TRON’s stablecoin is only issued from the pool of $2 billion by whitelisted wallet addresses – not “everyone can mint”. Reading from the code of the smart contract, only wallet addresses with “onlyWallet” permission can send USDD from the pool.

This means that TRON DAO Reverse has full control over the amount of USDD mints (not “decentralized” of course, but appropriate for the current situation). Or it can be understood that TRON’s stablecoin is a centralized stablecoin, not a decentralized one as we know it, more like USDC and USDT than a copy of UST.

USDD has less impact than UST

One of the reasons the LUNA-UST crash hit the entire crypto market is because LUNA-UST is so heavily associated with other projects/protocols. Therefore, once Terra collapses, a knock-on effect will drag on DeFi and CeFi projects that are using LUNA-UST.

This effect is also evident in the case of Celsius-stETH. Since the protocols lend themselves to each other, leveraged ETH and stETH rotated multiple times leading to a chain collapse.

Meanwhile, very few projects are using USDD. Remember that the total circulating supply of UST before the collapse was 18.5 billion while USDD is just over 700 million at the moment.

Justin Sun and Do Kwon

Another difference is that the person behind USDD is Justin Sun. As seen on Sun’s Twitter, he often interacts and gives opinions on Do Kwon’s LUNA-UST incident.

Therefore, it can be seen that Sun clearly understands the mistakes that Do Kwon made, and knows the mechanisms that caused LUNA to collapse, so he can apply and avoid it for his project. Not sure if Sun will follow in Kwon’s footsteps, but on the positive side, LUNA-UST is always a lesson for everyone.

And it seems that Justin Sun has revealed something to FatMan – a character who criticizes and exposes the secrets of LUNA-UST that have been of interest to the community in recent times.

From the above analysis, it can be seen that there is no on-chain data to support USDD being depeg. So this situation is still happening probably because Justin Sun wants to keep it depeg.

TRON DAO Reverse also posted some analysis that confirmed USDD is not depeg – which is normal because it depends on collateral and on-chain mechanism.

So with the current situation, the best thing we should do is stay out of the game. Whether long or short TRX or USDD at this time is not a wise thing as there are still no official updates, especially at a time when the market is in turmoil with the total circulating supply returning to $1 billion.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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