Depeg the most mentioned words in recent days, specifically from the UST lose its peg and now trading at price: 0.0064U. The next are USDT, USN, USDN, and then USDD stablecoin of TRX chain. Several crypto critics were quick to respond to the depeg, comparing USDD depeg to the Luna crypto crash that saw TerraUSD depeg initially pegged to the dollar. In the midst of this potential de-peg, the Tron DAO Reserves continue collateral over $2b assets include: BTC, TRX, USDC, USDT to protect the peg and promise to use $2 Billion to make the incident better. In this article we will compare UST and USDD to assess whether USDD will collapse like UST or not?
USDD Lose its Peg
According to Curve.fi the USDD has now lost its peg to $1, currently dropping to $0.98 and it continues to lose its peg to this day. The crypto market cap fell from $1,188B to as low as $835B and Reserve USDD > 83%. According to the official TronDAO website, USDD’s collateral is valued at $2 billion, while the stablecoin’s supply in circulation is $723 million, implying that it has enough funds to acquire USDD with reserves.
Comparisons USDD vs UST
The same burn mechanism in both USDD/UST
Just like Terra’s UST, the USDD stablecoin is an algothomic-stablecoin in the sense of a burning mechanism. It functions by burning Tron (TRX) to stabilize the peg of USDD. Whenever, there are tokens that are sent to burn wallet, there will be TRC10 amount sent back to the authorized contract. Then TDR will convert TRC10 into TRC20 to TDR members
Case 1: Peg 1:1 => Achieve target
Case 2: USDD > 1 USD
Use TRX as collateral to mint USDD; when mint USDD, the quantity increases, making the peg return 1:1. At the same time, the mechanism will burn the collateral TRX causing the supply of TRX to decrease and then increase in value.
Case 3: USDD < 1 USD
Burn USDD to reduce the quality, then peg back to 1:1 ( You can understand that the smaller quantity – the more value will increase, so the USDD value will return to 1U), and when burning USDD, a corresponding amount of TRX will be minted. This is an issue USDD is facing like the UST of Luna.
Reserve collateral – Bitcoin, TRX, USDC, USDT / LUNA: BTC, UST, USDT, USDC
Similar to UST of LUNA (the fund’s composition are similar when volatile assets such as BTC, and native tokens such as TRX / LUNA). At some point during June 12, we were able to see the collateralized ratio was around 185% if you take a closer look. Let’s try out this formula: Collateral Ratio = Reserves / Total USDD Supply. You will have around 85% < 100% guaranteed ratio.
Well, that was before TRD injected $1.2B USDC into the reserves ($100M to BTC and $100M TRX respectively). Now it has reached 315%. TDR currently added the USDC and BTC as stablizing the pegg as the lessons learned from the collapse of LUNA, but I have to mentioned the price of TRX are pairing with other Layer 1 such as: TRX-ETH .
Playing a high-stakes game with the market (Luna Foundation Guard and Tron Dao Reserve)
The reason that UST depeg is because the supply of $14B deposits, and Luna Foundation Guard had around $4B. It was not possible to keep UST peg after May 11. Well, let’s say right now the USDD is safe for the moment in the limit of $2B USDD supply. But let account the market sentiment as the $500M (10b TRX) were dropped in a huge margin. The 10 billion TRX reserves on TRD would be in trouble. Now, UST and USDD are somewhat alike in some way, but the latter proves to be improved than the last.
Verdict
With the panic selling BTC, TRX also strongly reduces whether the USDD operating model can succeed and not be like UST, it takes time to answer, but with the current peg loss, many investors started to worry and whether will they continue to sell off USDD like UST? However, withdrawal limits, it will help USDD not be sold off like UST, reducing a part of the risk for investors.
If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.
DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.
Alan
Coincu Ventures
Author
Depeg the most mentioned words in recent days, specifically from the UST lose its peg and now trading at price: 0.0064U. The next are USDT, USN, USDN, and then USDD stablecoin of TRX chain. Several crypto critics were quick to respond to the depeg, comparing USDD depeg to the Luna crypto crash that saw TerraUSD depeg initially pegged to the dollar. In the midst of this potential de-peg, the Tron DAO Reserves continue collateral over $2b assets include: BTC, TRX, USDC, USDT to protect the peg and promise to use $2 Billion to make the incident better. In this article we will compare UST and USDD to assess whether USDD will collapse like UST or not?
USDD Lose its Peg
According to Curve.fi the USDD has now lost its peg to $1, currently dropping to $0.98 and it continues to lose its peg to this day. The crypto market cap fell from $1,188B to as low as $835B and Reserve USDD > 83%. According to the official TronDAO website, USDD’s collateral is valued at $2 billion, while the stablecoin’s supply in circulation is $723 million, implying that it has enough funds to acquire USDD with reserves.
Comparisons USDD vs UST
The same burn mechanism in both USDD/UST
Just like Terra’s UST, the USDD stablecoin is an algothomic-stablecoin in the sense of a burning mechanism. It functions by burning Tron (TRX) to stabilize the peg of USDD. Whenever, there are tokens that are sent to burn wallet, there will be TRC10 amount sent back to the authorized contract. Then TDR will convert TRC10 into TRC20 to TDR members
Case 1: Peg 1:1 => Achieve target
Case 2: USDD > 1 USD
Use TRX as collateral to mint USDD; when mint USDD, the quantity increases, making the peg return 1:1. At the same time, the mechanism will burn the collateral TRX causing the supply of TRX to decrease and then increase in value.
Case 3: USDD < 1 USD
Burn USDD to reduce the quality, then peg back to 1:1 ( You can understand that the smaller quantity – the more value will increase, so the USDD value will return to 1U), and when burning USDD, a corresponding amount of TRX will be minted. This is an issue USDD is facing like the UST of Luna.
Reserve collateral – Bitcoin, TRX, USDC, USDT / LUNA: BTC, UST, USDT, USDC
Similar to UST of LUNA (the fund’s composition are similar when volatile assets such as BTC, and native tokens such as TRX / LUNA). At some point during June 12, we were able to see the collateralized ratio was around 185% if you take a closer look. Let’s try out this formula: Collateral Ratio = Reserves / Total USDD Supply. You will have around 85% < 100% guaranteed ratio.
Well, that was before TRD injected $1.2B USDC into the reserves ($100M to BTC and $100M TRX respectively). Now it has reached 315%. TDR currently added the USDC and BTC as stablizing the pegg as the lessons learned from the collapse of LUNA, but I have to mentioned the price of TRX are pairing with other Layer 1 such as: TRX-ETH .
Playing a high-stakes game with the market (Luna Foundation Guard and Tron Dao Reserve)
The reason that UST depeg is because the supply of $14B deposits, and Luna Foundation Guard had around $4B. It was not possible to keep UST peg after May 11. Well, let’s say right now the USDD is safe for the moment in the limit of $2B USDD supply. But let account the market sentiment as the $500M (10b TRX) were dropped in a huge margin. The 10 billion TRX reserves on TRD would be in trouble. Now, UST and USDD are somewhat alike in some way, but the latter proves to be improved than the last.
Verdict
With the panic selling BTC, TRX also strongly reduces whether the USDD operating model can succeed and not be like UST, it takes time to answer, but with the current peg loss, many investors started to worry and whether will they continue to sell off USDD like UST? However, withdrawal limits, it will help USDD not be sold off like UST, reducing a part of the risk for investors.
If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.
DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.
Alan
Coincu Ventures
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