Justin Sun Claims USDD Is Safer, More Secure Than Terra’s UST

TRON founder Justin Sun said multiple backing assets and an over-collateralized reserve mean USDD is not susceptible to the same vulnerabilities as UST.

On May 9, UST lost the dollar rate causing a collapse in its fixed asset, Terra (LUNA). This caused the broader crypto industry havoc, including massive capital outflows and the ensuing series of CeFi bankruptcies.

Throughout this period, algorithmic stablecoins have been seen as inherently vulnerable. But despite some similarities between USDD and UST, as both are algorithmically pegged and have high APY yields, Sun argues that USDD is distinct.

In a recent interview conducted by CoinGecko, Sun explained the difference between USDD and UST by saying that UST is entirely dependent on LUNA. In other words, there is only one single determinant for the stability of the latching mechanism.

“LUNA is the token for the blockchain, you can use LUNA to mint UST. But the problem for LUNA and UST is they only have one correlation. So all of the UST price is 100% based on the LUNA price.”

Sun went on to say that this is not the case for USDD, which uses a hybrid model that considers other stablecoins on the market to ensure its price stability. This refers to being able to mint and burn from/to four different assets, including USDT and USDC.

“We take advantage of all the stablecoins in the market to guarantee the decentralization. But also, at the same time, guarantee the safety of the stablecoin.”

KuCoin explained in a blog that USDD works by using a decentralized price oracle to estimate the USDD price. Super representatives (SRs), who vote on the current rate in US dollars, serve as the basis for this mechanism.

The voting process requires a tally of votes and the calculation of weighted averages that are the exact exchange rates. SRs that vote within the standard deviation of the chosen mean are rewarded, thus encouraging correct voting among SRs.

Similar to other algorithmic pegs, if the price of USDD trading is higher than the dollar rate, users can exchange 1 USDD for a TRX equivalent of $1. When the price returns to the closing level, this amount of TRX can be sold for a higher value and the user can pocket the difference and vice versa.

Furthermore, Sun also pointed out that USDD-backed collaterals exceed supply. In theory, this means that token holders can always exchange for USD.

“This provides a very good counter for the participants in the market… Right now, the overall collateralized percentage for USDD is at 300%, so it’s very healthy.”

TRON DAO reverse shows a USDD supply at $747.4 million, with collateral including TRX, BTC, USDT and USDC totaling $2.3 billion — or a 307% ratio.

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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