USDD: Tron’s New Stablecoin

    14 May 2022

    Tron founder Justin Sun kept his promise and introduced the project’s own algorithmic stablecoin, designated USDD. The unique thing about the new token is that it is backed entirely by cryptocurrency.

    There seems to be a new trend going around. The moment Terra launched its UST stablecoin (having issued over $18 billion), the Tron blockchain followed suit with USDD. The project was officially presented on April 21, when Tron founder Justin Sun announced plans to accumulate a $10 billion reserve of bitcoin and other cryptocurrencies to back the new stablecoin, with $1 billion amassed by May.

    True to Sun’s word, the token – USDD – was released on May 5. An independent decentralized autonomous organization called Tron DAO was set up to manage the project. Its task for the immediate future is to accumulate the resources necessary to maintain stability. The reserve is supposed to help secure the peg to the US dollar even if a sudden downturn in the cryptocurrency market undermines the algorithmic method of upholding the stablecoin price.

    In order to accumulate the required amount, Tron DAO is looking to work with institutional investors – primarily cryptocurrency exchanges and venture capitalists. There’s just one problem – Sun has yet to name a single real prospective partner. However, he stated: “We already have liquidity for the first round. I think that right now, we hold enough for the next 6-12 months. But of course, we reserve the opportunity to receive even more funding in the future. Our number one priority is simply to stabilize the USDD and win people’s trust.”

    After creating the reserve, Tron DAO will set its base risk-free interest rate at 30% per annum. By comparison, Terra currently pays out a 19.5% annual percentage yield (APY) on TerraUSD held in its Anchor Protocol.

    The creator of the Tron project is convinced that the future of cryptocurrency lies with decentralized tokens resistant to interference from regulatory authorities. It is already known that the new stablecoin will be available on the Ethereum and BNB networks via an internetwork protocol.

    So let’s dig deeper into the project’s mechanics. In his April 21 announcement, Justin Sun claimed that the issuance of USDD ushered in the era of Stablecoin 3.0, in which coins would not rely on any centralized institutions for redemption, management, or storage, achieving full network decentralization instead.

    USDD is an algorithmic stablecoin that follows Terra Labs’ UST model. According to the technical documentation, USDD uses a built-in mechanism for automatic stabilization in case of market fluctuations. The Tron team plans to maintain the stablecoin value by backing it with a basket of cryptocurrencies and the project’s native token – TRX. Like other TRC-20 coins, USDD can be traded without brokers, using exclusively smart contracts on the Tron network. The lack of control by any person or entity makes USDD more capable of fulfilling its role as a stablecoin – a direct shot at USDT and its issuer, Tether Limited – a centralized entity that occasionally blocks owners from accessing their coins, for example, on orders from law enforcement or other government bodies. USDD holders suffer no such risks.

    Keep in mind that Tron cryptocurrency (TRX) itself has an $8.45 billion capitalization. TRX, created by Justin Sun in the image and likeness of Ethereum, was launched in 2017, before many other popular modern blockchains.

    The USDD Tron-based roadmap includes four stages: 1.0 Space, 2.0 ISS, 3.0 Moon, and 4.0 Mars, referencing the stages of human space exploration. In 1.0 Space, the management of USDD will be entrusted to Tron DAO Reserve and other major blockchain companies. Their task will be to provide the storage of highly liquid assets worth $ 10 billion raised from blockchain industry giants and used as an early-stage reserve. The same body will maintain a stable USDD/USD exchange rate and ensure full convertibility. The content of the subsequent stages has not yet been disclosed.

    What is interesting about the whole enterprise is that the world’s foremost stablecoin today – USDT – although released on many well-known blockchains, is actually most popular on Tron (USDT TRC-20). The network holds financial assets worth more than $55 billion.

    Now, on the potential problems. Firstly, the USDD creators claim that staking the coin will bring its holders 30% annual returns. But it is at the very least strange to declare a guaranteed income from a stablecoin right out of the gate, especially such a high one. It makes it look as if USDD is just a part of some larger DeFi project Justin Sun has in mind.

    Secondly, backing the dollar-pegged stablecoin exclusively with cryptocurrency assets… Well, you could certainly call it a new word in crypto-fiat relationships. Sun seems to be more of a troll than even Elon Musk.

    And lastly: not that long ago, while researching the attitude of American regulators towards stablecoins, I wrote that the US financial authorities made a strategic decision: stable cryptocurrencies will be allowed, but only if issued by financial institutions (banks), not IT companies. In other words, behind every new stablecoin, there should be financial experts that tell blockchain people what to do. In the case of Tron, however, these roles are reversed. So grab your popcorn, and let’s wait for the SEC reaction.

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