Tron launches new algorithmic stablecoin USDD

Tron, an Ethereum competitor blockchain, announced the launch of USDD, an algorithmic stablecoin inspired by the success of Terra’s UST, which has topped $18 billion in total issuance. USDD has launched on TRON, BNB Chain, and Ethereum blockchains. The team behind the stablecoin has promised “zero-risk” returns of about 30% APY, and users currently need to engage in “mining” to capture the yield.

The stablecoin – very similar to Terra’s UST – is designed to incentivize arbitrageurs to keep its price closely pegged to that of the US dollar, through trading between TRX, Tron’s token, and USDD. Like Terra, Tron has also signaled its intent to establish a reserve of $10 billion in Bitcoin and other cryptocurrencies to support the new stablecoin.

Tron unveiled its plan to roll out USDD on April 21. According to the announcement, the stablecoin will be available on Ethereum and BNB Chain via the BitTorrent network’s cross-chain protocol.

Algorithmic stablecoins – cryptocurrencies with a price pegged to another asset, usually to the U.S. dollar by a pre-programmed or “algorithmic” incentive mechanism – are suddenly the talk of the town in crypto. The amount outstanding of Terra blockchain’s stablecoin, UST, has swelled to $18 billion from $2 billion. That’s partly because of the current financial environment, where inflation is high, the Federal Reserve is raising interest rates and investors are hunting for high yields. Stablecoins like UST can in many cases be parked in blockchain-based protocols or deposited with crypto lenders for high yields.

In an interview, Tron founder Justin Sun told The Block that he sees USDD as becoming “just like bitcoin” — except that its price, in theory, will be aligned with that of the US dollar. Both he and Terra founder Do Kwon have spoken of their desire to build stablecoins that are resistant to interference by regulators.

“We need to make the stablecoin in the industry just as decentralized as bitcoin, so no one can touch it,” Sun said. “I believe in the next five to 10 years, crypto will be settled by decentralized stablecoins.”

Asked how these stablecoins would combat criminality, Sun pointed to data tools like Chainalysis. He does not believe, he added, that freezing assets is an effective remedy to money laundering.

A decentralized autonomous organization (DAO) named Tron DAO will manage USDD. Tron DAO will administer a reserve with a 30% interest rate, according to the April 21 announcement.

It will also oversee an effort to amass $10 billion in bitcoin and other decentralized cryptocurrencies for the proposed reserve. Sun likened the DAO to the Luna Foundation Guard, a Terra-boosting non-profit based in Singapore that raised $1 billion for a reserve through a sale of LUNA in February. The idea is that these reserves will step in to help preserve their respective stablecoins’ pegs, should a sudden crypto market slump cause the algorithmic method to fail.

“The number one priority is just to try to stabilize USDD,” said Sun. “We want to keep USDD stable and win people’s trust.”

Sun said Tron would collaborate with institutional investors – mainly crypto exchanges and venture capitalists – to get USDD’s reserve off the ground, although he did not name them. Tron DAO will also contribute TRX, Bitcoin, Ether, and some established stablecoins to the reserve, he added.

“We already have the liquidity for the first round. I think right now, for the next six to twelve months, we already have enough [in the] reserve to kick everything off. But, of course, we will reserve the option to get more financing in the future,” said Sun. “Kicking off in May, I think we’re probably going to have $1 billion put into the reserve.” The Block has not been able to verify whether that $1 billion has indeed materialized.

USDD has also published a Medium post presenting an “official guide to USDD mining.” In it, the team says that USDD is “embarking on the Stablecoin 3.0 era on TRON.”

The USDD stablecoin launch follows weeks of hype within the TRON community. Among the new coin’s biggest evangelists was TRON founder Justin Sun, who promised in April that USDD holders would be able to capture a “risk-free” 30% interest rate when it launched. Sun said that holders would be able to earn the lucrative yield through the TRON DAO Reserve that was recently established to manage the stablecoin and touted a vision of “a giant leap for mankind in pursuing the ultimate financial freedom.”

The guide to USDD mining was shared in a tweet promising “juicy rewards with zero-risk.” It explains that the new stablecoin is currently available on several trading venues, including the TRON-based exchange SunSwap, BNB Chain’s PancakeSwap, and Elipsis Finance, and the early Ethereum DeFi protocols Uniswap and Curve. Users can swap from various stablecoins or trade in their TRX on TRON to get hold of the tokens.

The post also details how to participate in USDD mining to earn an interest rate on USDD. It says that USDD mining is live on a TRON-based mining platform and the Poloniex cryptocurrency exchange. “The designated platform collaborates with TRON DAO Reserve, which can guarantee a maximum profit of 30% APR. The second type is cooperative mining, with the interest rate for returns jointly supported by TRON DAO Reserve and will fluctuate around 30% APR,” the post explains. “TRON DAO Reserve will do its best to ensure a stable interest rate for cooperative mining returns.”

The post says that users can mine USDD on BNB Chain’s Ellipsis Finance by entering three pools: USDD-BUSD, USDD-USDT, and USDD-USDC. According to the post, the APR ranges from 23 to 59%. Alternatively, the USDD-TRX and USDD-USDT liquidity pools on TRON’s SunSwap offer “up to 30% mining rewards” from 16:30 UTC. Per the blog post, users will also be able to earn a fixed 30% yield by depositing USDD on the lending platform JustLend from May 12.

Though the post doesn’t detail exactly how the TRON DAO Reserve will secure the “profit of 30% APR,” it describes four stages of USDD’s development: Space, ISS, Moon, and Mars. In some senses, TRON’s vision for USDD takes inspiration from Terra and its algorithmic stablecoin, UST. Terra uses a volatile token called LUNA to stabilize UST and has become one of crypto’s largest Layer 1 networks. UST holders can deposit it in a lending protocol called Anchor to earn fixed returns of about 18% APY.