USDD and TRX, Same Fate As UST or Different?

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Hey everyone,

There’s been tons of news regarding stablecoins after the UST incident, policies coming up to protect investors, LUNAv2 coming out to try and rekindle what once was, and other projects now developing algorithmic stablecoins to try and provide value to investors. What caught my attention was the TRON team creating USDD about a month or so ago, with almost identical mechanics as UST/Terra.

I saw this come up through a bunch of articles about Justin Sun claiming that USDD’s collateral ratio will be a minimum of 130%, while being able to reach as high as 200%. Currently it’s at 205% according to the tdr site. Just for reference, UST claimed to have 117% minimum collateral ratio but look how that turned out.

Once researching, I noticed the TRON DAO Reserve fund (https://tdr.org/#/). This fund “aims to mitigate severe economic downturns, as well as managing USDD price stability”. The total market cap of the DAO reserve is 42 billion USD according to the site, interesting.

On top of the TRON DAO Reserve fund, The Reserves for USDD at the moment are 14,040 BTC, 140m USDT, and 1.9b TRX. USDT in itself is unverified, BTC can fall at unexpected moments, and supposedly they plan to create a burn mechanism similar to what UST/Terra utilized (Swap $1 TRX for 1 USDD), that could potentially cause mass devaluation of TRX and another death spiral (Here’s the whitepaper https://usdd.io/USDD-en.pdf).

However, going through the whitepaper, I noticed that the mint and burn mechanism will not be fully released until November 2022. So as of right now, theoretically there cannot be another scenario that matches the Terra/UST one. We now have a waiting game until the mechanism is released. So what does everyone think, am I right in thinking that it is possible that the higher collateral ratio will guarantee the tokens safety? Or is this another stablecoin incident waiting to pop?

submitted by /u/Vicar13
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