Tron’s Stablecoin Launch Seems to Be a Big Deal

H.E. Justin Sun, Founder of TRON, has announced the launch of USDD through the TRON DAO Reserve on Thursday, May 5. SunSwap, Uniswap, PancakeSwap and Ellipsis, are among the first to have listed it. USDD (Decentralized USD) is a decentralized algorithmic stablecoin launched on TRON, Ethereum, and BNBchain.

The stablecoin is designed to incentivize arbitrageurs to keep its price closely pegged to that of the US dollar, through trading between TRX, Tron’s token, and USDD. According to USDD’s white paper, the peg will be sustained by creating and destroying USDD supply by a mint-and-burn mechanism and an arbitrage swap:

If the price of USDD falls below $1, users can buy 1 USDD in the external market and then swap 1 USDD for a guaranteed $1 worth of TRX. As a result of the arbitrage, 1 USDD will be burned, and $1 worth of TRX will be minted. Theoretically, as the supply of USDD decreases, USDD’s price will increase, to the point where there is no room for arbitrage. Similarly, if the price of USDD is above $1, users can swap $1 worth of TRX token for 1 USDD in the protocol. This way, 1 USDD will be minted and $1 worth of TRX will be burned, expanding the supply of USDD until its price will go down to the peg.

Seems that USDD is doing great: The TVL of $USDD — $USDT LP on SUN.IO (first integrated platform for stablecoin swap, stake-mining, and self-governance on TRON) now exceeds $60 Million after only 2 days!

A decentralized autonomous organization (DAO) named Tron DAO will manage USDD. It will administer a reserve with a 30% interest rate. Tron says it aims to raise $10 billion. Tron DAO will also contribute TRX, bitcoin, ether and some established stablecoins to the reserve.

Seems that the new stablecoin has a similar mechanism to Terra’s TerraUSD. “It is mechanistically similar to Terra’s UST in terms of minting and price stability,” said Dustin Teander, an analyst at digital asset data platform Messari. Kevin Zhou, co-founder of the hedge fund Galois Capital, called it a “LUNA clone,” and Alex Krüger, a popular crypto analyst, echoed his views in a tweet:

Algorithmic stablecoins currently are the talk of the town. The circulation supply of Terra blockchain’s stablecoin has soared up to $18 billion from $2 billion in just half a year. The current financial environment, where inflation is high and the Federal Reserve is raising interest rates can be one of the reasons. Justin Sun firmly believes in the future of stablecoins: “We need to make the stablecoin in the industry just as decentralized as bitcoin, so no one can touch it. I believe in the next five to ten years, crypto will be settled by decentralized stablecoins.”