Tron DAO recently spent hundreds of millions in strengthening USDD’s peg, but the stablecoin has failed to regain its $1 value. USDD is currently valued at $0.973, with a market capitalization of approximately $700 million.
Tron’s USDD was launched on the fifth of May, and the decentralized stablecoin quickly made waves, reaching the eighth rank in the list of cryptocurrencies by market capitalization. In mid-June though, things started to look messy for the crypto asset.
The algorithmic stablecoin fell to $0.97, forcing Tron DAO to swap $500 million worth of USDC from its reserves for Tron tokens (TRX). The following day, USDD still failed to catch up with its supposed value.
The token further fell to $0.95, and Tron DAO had to dip into its reserves again. The protocol purchased extra TRX tokens worth hundreds of millions. Despite these huge buys, Tron’s algorithmic stablecoin is still yet to gain stability.
Tron’s USDD Concerns
USDD is a stablecoin that operates on the Tron ecosystem. The token is meant to maintain a $1 at all times. Notably, USDD is an algorithmic stablecoin that hit the market shortly after the crash of Terra’s UST.
Its first criticism is its mechanism for maintaining stability. The token’s stability is maintained with the same framework UST used before it crashed hard. USDD is backed by Tron, and more TRX tokens are minted each time USDD trades below the $1 mark. Also, TRX tokens are burned if USDD goes above $1 until the price retains its peg.
After the launch of the token, Justin Sun and his team were warned about the token’s poor framework. The Tron founder was quick to defend himself, claiming they have learned from Terra, and UST’s downfall will not be replayed.
The USDD token is also promoted for staking on the Poloniex exchange and Kucoin. Poloniex offers a 40% APY for stakers, while Kucoin offers a 60% APY. These ridiculously high annual returns are unsustainable, and provide fodder for criticism who say USDD may not last long.