TRON’s Claims Of USDD Over-Collateralization May Be Overblown.
TRON DAO claims that its USDD stablecoin is now collateralized to the tune of more than 200%. However, a crypto expert believes the statements are overstated.
The collapse of the Terra-LUNA ecosystem in early May sparked widespread skepticism toward algorithmic stablecoins in general.
Given the uncertainty, several algorithmic stablecoins are arming themselves, making adjustments to their operational designs to ease the concerns. But, more crucially, stablecoins are attempting to avoid the problems that TerraUSD has encountered.
TRON reported on June 5 that their stablecoin USDD is 218% overcollateralized. Tron also guaranteed a collateral ratio of at least 130% at all times. The TRON DAO presently has $835.9 million in reserves, which are made up of Bitcoin (BTC), Tether (USDT), and TRON’s TRX token.
In the announcement, TRON founder Justin Sun stated:
“Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability. 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.”
While this may appear to be reassuring to investors, a critical vulnerability has been identified by a Proximity Labs executive who goes by the Twitter handle’resdegen.’ Proximity Labs is a Near Protocol research and development organization.
Resdegen alleges in a Twitter thread that TRON’s assertion of USDD being over collateralized at over 200% is “technically FALSE.”
In layman’s terms, a stablecoin’s collateral ratio is the ratio of collateral to issued stablecoins. As a result, the USDD collateral ratio can be computed as follows:
[USDD collateral (reserves)/ total supply of USDD]*100 = [835.9 million/ 667 million]*100 = 125.32%
At the time of writing, the result was equivalent to the collateral ratio shown on the TRON DAO Reserve’s website. According to resdegen, if the price of TRX begins to plummet, it might be a slippery slope for USDD.
The risk is exacerbated by the fact that TRX is one of the collateral currencies backing USDD, according to Resdegen. He stated:
He noted comparisons with the UST system, which also used LUNA as collateral, among other cryptocurrencies.
TRON’s reserves at the time of writing were $440.9 million in Bitcoin, $240 million in USDT, and $157.4 million in TRX. These figures demonstrate that TRX accounts for more than 18% of TRON Reserves.
However, according to resdegen, the genuine collateral ratio of USDD should be determined without taking into account the TRX in reserves as well as the burnt TRX. If the collateral ratio is determined without the TRX reserves, the USDD will be collateralized at around 81% at the time of publication.
TRX, according to resdegen’s viewpoint, should not be included in reserve calculations because its price is intrinsically related to USDD’s peg. He said:
Resdegen is ringing an alarm about USDD, drawing parallels with Terra tokenomics, in which UST’s peg maintenance was dependent on the LUNA price rising.
The ecosystem may not accept the reasoning for eliminating TRX from TRON’s Reserves entirely. However, resdegen may be correct in that including tokens that will be burned while computing the USDD’s collateral ratio appears to be misleading.
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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Patrick
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TRON’s Claims Of USDD Over-Collateralization May Be Overblown.
TRON DAO claims that its USDD stablecoin is now collateralized to the tune of more than 200%. However, a crypto expert believes the statements are overstated.
The collapse of the Terra-LUNA ecosystem in early May sparked widespread skepticism toward algorithmic stablecoins in general.
Given the uncertainty, several algorithmic stablecoins are arming themselves, making adjustments to their operational designs to ease the concerns. But, more crucially, stablecoins are attempting to avoid the problems that TerraUSD has encountered.
TRON reported on June 5 that their stablecoin USDD is 218% overcollateralized. Tron also guaranteed a collateral ratio of at least 130% at all times. The TRON DAO presently has $835.9 million in reserves, which are made up of Bitcoin (BTC), Tether (USDT), and TRON’s TRX token.
In the announcement, TRON founder Justin Sun stated:
“Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability. 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.”
While this may appear to be reassuring to investors, a critical vulnerability has been identified by a Proximity Labs executive who goes by the Twitter handle’resdegen.’ Proximity Labs is a Near Protocol research and development organization.
Resdegen alleges in a Twitter thread that TRON’s assertion of USDD being over collateralized at over 200% is “technically FALSE.”
In layman’s terms, a stablecoin’s collateral ratio is the ratio of collateral to issued stablecoins. As a result, the USDD collateral ratio can be computed as follows:
[USDD collateral (reserves)/ total supply of USDD]*100 = [835.9 million/ 667 million]*100 = 125.32%
At the time of writing, the result was equivalent to the collateral ratio shown on the TRON DAO Reserve’s website. According to resdegen, if the price of TRX begins to plummet, it might be a slippery slope for USDD.
The risk is exacerbated by the fact that TRX is one of the collateral currencies backing USDD, according to Resdegen. He stated:
He noted comparisons with the UST system, which also used LUNA as collateral, among other cryptocurrencies.
TRON’s reserves at the time of writing were $440.9 million in Bitcoin, $240 million in USDT, and $157.4 million in TRX. These figures demonstrate that TRX accounts for more than 18% of TRON Reserves.
However, according to resdegen, the genuine collateral ratio of USDD should be determined without taking into account the TRX in reserves as well as the burnt TRX. If the collateral ratio is determined without the TRX reserves, the USDD will be collateralized at around 81% at the time of publication.
TRX, according to resdegen’s viewpoint, should not be included in reserve calculations because its price is intrinsically related to USDD’s peg. He said:
Resdegen is ringing an alarm about USDD, drawing parallels with Terra tokenomics, in which UST’s peg maintenance was dependent on the LUNA price rising.
The ecosystem may not accept the reasoning for eliminating TRX from TRON’s Reserves entirely. However, resdegen may be correct in that including tokens that will be burned while computing the USDD’s collateral ratio appears to be misleading.
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.
Join CoinCu Telegram to keep track of news: https://t.me/coincunews
Follow CoinCu Youtube Channel | Follow CoinCu Facebook page
Patrick
CoinCu News
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