Drawing a lesson card from the collapse of Terra’s algorithmic stablecoin, TRON plans to significantly increase the amount of capital backing for its own stablecoin USDD which was launched on May 5.
USDD was designed to maintain its peg to the US dollar algorithmically. Now, it will be over collateralized. Justin Sun, the founder of TRON, said a reserve comprised of cryptocurrencies and other stablecoins has been amassed. He highlighted that it will be maintained at a minimum of 130% of the total amount of USDD in issuance. The collateral ratio is guaranteed and would begin publishing real-time updates on the collateral ratio.
The reserve, as per a TRON spokesperson, contains 14,040 Bitcoin worth around $418 million; 140 million USDT; and 1.9 billion TRX, as well as 8.29 billion TRX in the burning contract. Sun said TRON wants to upgrade the USDD to the advanced hybrid model. On one side, there will be an algorithmic stablecoin, and TRON DAO Reserve on the other hand.
It should be noted that USDD was designed to incentivize arbitrageurs to keep its price pegged to the US dollar via trading between TRX (TRON’s token) and USDD. TRON also intended to establish a reserve of billions of dollars worth of Bitcoin and other cryptocurrencies to support the stablecoin in extreme market conditions. However, a similar combination of safeguards proved futile for Terra’s UST, which was the third-largest by issuance prior to its collapse. UST’s fall had a drastic impact on Terra’s LUNA which saw $40 billion being wiped out in value.
But Sun says hope remains for TRON’s USDD which has reached $667 million in total circulating supply. He explained that the reserve backing that TRON is using right now is highly diversified. It includes different kinds of stablecoins and Bitcoin. Sun said the Bitcoin addresses will be signed by signature so everybody will know those digital assets belong to them. TRON will also have Circle’s stablecoin USDC as part of its reserve but it will only be a small part.
