Terra model repeats itself: Tron backs its USDD stablecoin with 14,000 bitcoins


A month away from the start of the issuance of Decentralized USD (USDD), the Tron network’s own stablecoin, the decentralized autonomous organization (DAO) Tron Reserve unveiled the assets backing the project. Among these, the majority cryptoasset is bitcoin (BTC), with 14,000 units, similar to what happened with Terra’s reserves for its terra USD stablecoin (UST).

Recall that with much of Terra’s funds, they switched blockchain and moved to pre-launch projects, the two most talked about, Minosis Token and Ownex, on the BSC.

However, certain similarities between Tron’s model for its stablecoin and the one Terra had for UST have already been delved into. It also reflected the position of Justin Sun, Tron’s lead developer, who thinks that the two models are not similar.

Among the points in common between both cryptocurrencies are aspects such as the algorithmic issuance based on another cryptoasset as counterparty and the creation of a reserve to face eventual emergencies or losses of parity of the stablecoin with the dollar. In the case of Terra, the reserve was managed by Fundación Luna, while in Tron it is managed by a DAO, Tron Reserve.

As described on Tron Reserve’s official website, the DAO holds 14,040.6 BTC as the main backing for its stablecoin. According to the CryptoNews price index, the sum is equivalent to just over USD 433 million at the time of writing.

In addition, the fund also consists of USD 240 million of Tether (USDT), the leading stablecoin in terms of market capitalization according to CoinGecko data, and USD 1.9 billion of Tron (TRX). The latter is the network’s native cryptocurrency, and according to its market value at the close of this note, the figure is equivalent to USD 158.5 million.

Thus, according to official figures, Tron Reserve would have already reached USD 831.5 million in reserves. As published in this newspaper, the project’s white paper highlights that the first stage, which lasts until October 2022 and focuses on institutional investors, aims to reach USD 10 billion in reserves for the stablecoin.

One of Justin Sun’s arguments for differentiating his USDD stablecoin from Terra’s was “overcollateralization” with low-volatility assets. So far, Tron has funded most of the USDD reserves, The Block reports, but it plans to add private equity support in the coming months.

The goal is for the reserves to be 180% or 200% higher than the total issuance of the crypto-asset, which currently circulates 667 million units. This means that the current collateralization of USDD is 125%.

Through an article in published Medium, USDD announced that it would increase those reserves (currently greater than 200%, according to the project’s leaders). At this point, Tron takes into account the TRX burned to issue USDD, which is more than 8,297 million and equivalent to USD 667.5 million.

In addition to not yet reaching the initial target (or yes, depending on the parameter chosen), the collateralization does not meet the requirement of being in low volatility cryptoassets as Sun had said. Following what was previously detailed, 52% of Tron Reserve’s reserves are in bitcoin, a cryptocurrency considered volatile due to the instability it can show in its market value, which could affect USDD’s liquidity in the face of certain bear market conditions.

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