By Solomon Odunayo
Global investors are yet to recover from Terra’s UST crisis, and similar threats appear impending. Tron DAO’s USDD stablecoin, introduced in May, seems on the downside path.
Latest Tron reports suggested USDD’s 200% over-collateralization to strengthen the stablecoin’s US dollar tie. Nevertheless, critics noted the approach resembled Terra’s UST. The criticism magnified after Tron CEO Justin Sun confirmed using 100M USDT from the Tron DAO reserve to buy more BTC and TRX reserves.
Also, Twitter users observed similarities between Tron’s approach and Do Kwon’s before the UST and LUNA debacle. Terra indulged in a BTC purchasing spree, spending billions before the stablecoin crash as it tried to ensure a steady reserve to strengthen the UST peg. Unfortunately, Kwon’s strategy triggered a colossal BTC fall when the system crash emerged.
One critic believes the latest announcement by Tron DAO confirms it is following UST’s path. The concerns remain heavy since USDD exhibits similar burn and mint mechanisms as TerraUSD. That means a similar fall spiral in case USDD experiences matching attacks.
USDD’s Overcollateralization
Tron DAO remains firm about its over-collateralization strategy, boasting that it’s more collateralized than DAI, an opponent decentralized stablecoin. The question remains whether that can annul the potential death spiral incident.
Most Twitter critics reiterated similarities between USDD and UST’s mechanism as a primary concern. Moreover, it provides massive staking yields (up to 30%) like UST to attract participation. The only difference is Tron DAO boasts more than $714 million in reserves.
That’s substantially lower than UST’s billion reserves before the slump. Though USDD has collateralization from different assets, the underlying issue remains. That can lead to excessive TRX minting, translating to diluted prices.
Overcollateralization with other stablecoins assures USDD holders that they can swiftly exit to prevent massive losses. Nevertheless, USDD’s burn and mint approach remains flawed like UST’s. Time will confirm whether USDD will see Terra’s fate.
What are your thoughts about USDD’s possible debacle? Should will prepare for events that led to UST and LUNA crashes? Feel free to share your opinions in the reply area below.