Tron’s decentralised USDD stablecoin has failed to maintain its 1$ peg for 2 days!!
Tron’s recently launched USDD stablecoin struggling to maintain its peg to 1$
Since Monday, that is June 13th Tron’s decentralised stablecoin USDD is trading below the 1$ peg… This is interesting. In my last article, I have discussed about this newly created USDD stablecoin which launched as a algorithmic stablecoin, functioning similar to collapsed dead algorithmic stablecoin UST.
However, USDD is not a algorithmic stablecoin anymore, as the its operating model is changed, yet for the last few days USDD is trading below the 1 dollar peg.
USDD market’s its self as the most over-collaterised decentralised stablecoin in the world
Justin Sun is the man here still leading Tron Blockchain’s USDD. Now, USDD is marketed as a decentralized, world’s most over collateralized stablecoin backed by reserve assets of Tron, BTC and centralised stable coins USDC and USDT.
Right now, USDD is over collateralized by over 310% , and the minimum over collaterisation ratio will always be 130%. All this reserve for stablecoins is managed by Tron Dao.
You can these USDD over collaterisation details on Tron Dao’s website — https://tdr.org/#/
One should notice that USDD is backed by significant amounts of centralised stablecoins,i.e, USDD and USDT.
These over-collaterised details can be verified in Blockchain also, details written in Tron Dao’s website.
Tron Dao projects itself as a Reserve maintaining liquidity of major stable coins
By all appearances, Tron Dao is appearing to be Tron’s bank for stable coins to offer good APY’s on stablecoins in Tron Blockchain — USDC, USDT, USDD, TUSD and USDJ while providing liquidity to all these stablecoins.
Super over-collaterised USDD has for now for 2 days not able to restore its 1 $ peg
Tron’s USDD is also a cross chain agnostic stablecoin circulating on other major Blockchains Ethereum and Binance Smart Chain though its cross-chain protocol BitTorrent Chain.
Still, USDD’s peg is below 1$ and somehow this is worrying to someone whose held UST that had my holdings get wiped out!!
Obviously, all this over collaterisation is not bringing USDD’s peg back to 1$…shrugs.
News around that USDD’s de-peg is because of shorting of TRX by short sellers
The main cause for USDD to lose its peg, was Tron’s shorting on Binance Exchange, because although USDD is backed by collateral, its still got by burning 1$ worth of TRX, so this shorting price decline attack on Tron affects USDD’s peg stability.
Here is where things get interesting because Justin Sun announced he is fighting against TRX short sellers by injecting 2$ Billion to initiate a short squeeze.
Short squeeze of TRX happens if short sellers lose out against in their shorting bet
This means as sellers bet on TRX’s price going down, Justin Sun through Tron Dao tries to bring TRX’s price up through buying it.
So, in case Tron Dao’s efforts succeed then short sellers will be forced to close their positions buying TRX at a higher price than they brought when they borrowed it as they shorted TRX.
Short sellers borrow TRX, then sell it and use that money to bet on its price declice by shorting it. They intend to pay back the borrowed amount of TRX by buying it back at a cheaper price when TRX’s price falls along with earning profits with their shorting strategy paying off.
However, this 2$ billion injection to fight short sellers has not worked to restore USDD’s peg.
USDD’s strong over-collaterised backing should be enough to protect USDD’s peg
However, since Tron Dao’s over collateralized reserves of over 300% are backing circulating USDD, there is good buffer for USDD to maintain its peg I reckon.
Further more, Tron Dao is acquiring more assets like June 14th’s 500 million USDC to defend USDC’s peg, so they seem to have lot of capital to employ to fight all this de-peg crisis. Weather, this will work has to be seen!!
Let’s see what happens… crypto is always having something exciting. USDD obviously does not face a death spiral risk as USTdid as USDD is back by over collaterised collateral, although it’s minted by burning TRX, its a hybird over-collaterised decentralised stablecoin.
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