Is TRON’s USDD Similar to Terra’s UST?
Tron’s TVL has grown to over $6 billion in the past 30 days, ranking third behind BNB Chain with $8.8 billion and Ethereum with TVL $71.3 billion.
The rapid growth of TRON
Tron has become the third-largest network by total value locked (TVL) in DeFi protocols a month after launching its algorithmic stablecoin, USSD.
The Justin Sun-led protocol has seen its TVL grow to over $6 billion within the past 30 days, behind BNB Chain with $8.8 billion and Ethereum with a TVL of $71.3 billion.
CoinGecko, a crypto data aggregator, has identified the launch of its algorithmic stablecoin, USDD, as one of the reasons behind the massive increase in its TVL.
USDD was launched on May 5, and its market capitalization is currently above $621 million.
This rapid growth has led to some visualization of a parallel between it and TerraUSD, which exploded last month. Before the UST collapsed, stablecoins reached over $30 billion in market capitalization.
Compare USDD and UST
USDD and UST are both algorithmic stablecoins that are not backed by collateral. Considering the recent collapse of the UST, investors are becoming skeptical of stablecoins, especially those in the algorithmic category.
USDD was burned because its algorithm and framework looked like UST – mint USDD by burning TRX and minting TRX by burning USDD.
USDD is also backed by the Tron DAO, which plans to manage a reserve of $10 billion in various cryptocurrencies to support its peg. This is similar to LFG’s intention to hold $10 billion in bitcoin and AVAX to help the UST price fix.
While the fundamentals of USDD appear to be the same as that of the UST, Justin Sun argued in a recent zoom session that the difference in USDD performance makes it quite different from the UST.
He argued that UST grew too quickly in a short period and was overly leveraged, citing UST’s large market capitalization and relatively small reserves before its collapse. He also points to the high yields of the Anchor Protocol and the lack of proper consideration of market variables, such as technical areas where the UST has failed.
According to Justin Sun, USDD plans to focus on healthy growth by keeping its market cap lower than TRX, the Tron DAO reserve, and the entire crypto market cap. He stated that the reserve would mainly consist of Bitcoin, TRX, and other top stablecoins such as USDT, USDC, BUSD, DAI, and TUSD. Stablecoins can be deployed if USDD falls below its anchor, so it gradually takes time to liquidate other assets.
Unlike the Anchor Protocol, which has a constant interest rate of 20% without any withdrawal limits, Justin Sun said USDD is intended to introduce structures that affect interest rates and withdrawal limits.
Justin Sun affirms USDD can exist.
In a recently published blog post, Justin Sun revealed that USDD would learn from the catastrophic collapse of Terra’s UST.
According to the post, USDD will always be over-collateralized by less volatile assets like USDT, USDC, Bitcoin, and other digital assets.
Sun continued that the supply of USDD will be maintained in stages. In the first phase, those who bet on the algorithmic stablecoin will receive a fixed APR of 30%, and it will be capped at 2 billion USDD.
In the second phase, those who choose to lock in their USDD liquidity for a year will continue to receive a high APR, while those who lock in their liquidity for a shorter period will receive a lower rate.
He concluded that USDD would expand to other blockchains as the industry evolves. Currently, stablecoins are working on Tron, BNB Chain, and Ethereum
It can be seen that the basic principle of UST and USDD is similar. Still, it is a fact to be acknowledged that Justin Sun and Tron’s pockets are much more profound than Do Kwon and LFG’s, which means their ability to maintain the dollar exchange rate is likely to be higher.
Besides, there is now a lot of public information about stablecoin attacks, so TRON will have to try a lot and find a way to overcome the same disadvantages as USDD’s UST to develop a long-term coin this stablecoin.
What do you think about the two hottest stablecoins today?
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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