Stablecoin Mechanics 4: USDD’s Origin Story & Statistics
USDD was announced 21 April 2022 as a Justin Sun project that intended to offer a decentralized USD-pegged stablecoin. A fair amount of news coverage resulted with some details. The original blog post has been deleted but is still visible via the wayback machine. That original blog post clearly stated:
USDD on TRON is scheduled to be issued and enter circulation on May 5, 2022.
In the concluding paragraph we find:
USDD will be TRON DAO’s most significant contribution to the world’s financial freedom after the introduction of TRC-20 USDT.
So USDD is (was?) a high profile project with lofty aspirations. But the current market cap, now, 10 months later is only $724 million. Let’s dig in a little bit. There is a quick summary at the bottom.
Initial Issuance
Issuance began on the 1st of May. And grew quickly in the initial weeks:
The plan was to build up to $10 billion in backing assets and there were widely-reported purchases at the beginning such as this acquisition of $39 million worth of TRX.
Note that the project launched days before the Terra-LUNA collapse weekend. And it grew straight through that event.
Supposedly the project “went live” on 5th May and started acquiring assets immediately. They were even acquiring assets during the LUNA collapse. Overall minting was pretty steady-and-substantial at first:
There was no burning to speak of. All of this was funded by the TRON DAO Reserve which, presumably, had a bunch of funds around the time of the LUNA collapse.
Also note that minting began before the project went live. About $100 million were minted from the 1st through the 5th of May 2022.
What Happens Next: Ghost Town
If we extend the market cap chart to today we get:
Nothing has happened, net, since the week in June when the 3AC founders vanished. We are not saying those events are directly connected. But it seems plausible that a common underlying funding market dynamic drove these two seemingly-unrelated activities.
We know a lot of liquidity vanished from the market in mid May 2022. The minting process for USDD needed liquidity. 3AC needed liquidity. If they all stopped at the same time maybe they are symptoms of the same condition.
There Is Still Minting
We should not take this data to mean USDD is no longer minted. It is. In size. But the mints all have corresponding burns in short order which keep the market cap flat:
Here is total minting and burning by month:
Money flowed in during LUNA. A little bit more came in over the following few weeks ending with a $20 million mint on June 12th and $2 million mint on July 17th. From then money just washed around back and forth.
The State Of USDD
This leaves us with 3 possibilities.
- USDD did not really work out. The aspiration was to create a $10 billion project and it stalled — for whatever reason, we are not blaming anybody — at just over $700 million.
- USDD did whatever it was supposed to do. Possibly connected to the LUNA incident.
- This is somehow what USDD was supposed to do?
The TRON DAO Reserve claims it is somehow involved with over $40 billion in assets. But they are mainly USDT so that is kind of a weird claim as this reserve has nothing to do with Tether. And USDT supply is down since USDD started (recall: USDD started days before LUNA). So it seems unlikely the project is a success on the basis of anything in this general area.
At the same time the USDD-specific pile of assets has accumulated a substantial mark-to-market surplus. So maybe that was the point?
It’s backed, largely, by TRX. It’s an algo-stable backed by an equity-like token issued by a project close to the founder. What does that sound like?
Suspicious
It is surely suspicious that USDD grew dramatically during the LUNA incident and appeared free of liquidity problems at that time. It is doubly odd that, once the market began to digest the LUNA-induced insolvencies — starting with 3AC and rolling on through today — USDD stopped issuance dead but experienced no net redemptions.
And then, months later during the Celsius and FTX collapses, USDD saw large mint-burn cycles with no net money in or out.
Previously we kicked off a novel vein of investigation by pointing out that seemingly-minor fiat-backed stablecoins were more important than was commonly understood. As we wrote then:
The key takeaway is that it looks like a large chunk of real USD travelled through a few minor stablecoins and ended up in one of the larger US-based crypto-serving banks as some kind of backing for USDT on TRON.
A myopic focus on market cap can lead you to miss important information.
Here we are highlighting that some minor algo-stables may prove surprisingly important too. Again a narrow focus on market cap misses important mint-burn dynamics. And, in a fashion all-too-reminiscent of low-KYC minor stablecoins, algo stable mints and burns can provide some measure of obfuscation and indirection.
About $1.3 billion flowed through USDD in August-September-October 2022. That money has stories to tell.
Key Findings
Overall we’ve found:
- USDD had something like a pre-mine comprising ~15% of peak and current market cap.
- USDD was minted in a nearly straight line upwards starting just before the LUNA weekend and ending ~coincidentally with the 3AC folks doing a runner.
- Market cap has been flat ever since with what look like coordinated mints and burns pushing another ~2x market cap through. It looks more like a washing machine than a store of value, unit of account or medium of exchange.
- Unlike every other stablecoin USDD did not see post-LUNA (or post-BlockFi, Celsius, 3AC or FTX etc) net redemptions. Not even temporary ones.
- It looks like USDD is considered a success by the project’s backers. But, as a definitely-not-first-tier stablecoin with a flat <1b market cap, it is unclear why and therefore what the real design goals were.
As always, more info is out there.
