Justin Sun believes Tron-native stablecoin USDD is inherently safer and more secure than Terra’s UST.

On May 9, UST misplaced its greenback peg setting off a collapse in its pegging asset, Terra LUNA. This triggered devastation throughout the broader crypto business, together with mass capital outflows throughout the board and a subsequent spate of CeFi bankruptcies.

Throughout this era, algorithmic stablecoins had been demonized as intrinsically susceptible. But regardless of some drawing parallels between USDD and UST, as each are algorithmically pegged and have(d) excessive APY yields, Sun argues that USDD is totally different.

USDD mechanism to keep up peg

In a current interview performed by CoinGecko, Sun expounded on the variations between USDD and UST by saying UST was wholly depending on LUNA. In different phrases, there was solely a single determinant to stabilize the pegging mechanism.

“LUNA is the token for the blockchain, you can use LUNA to mint UST. But the problem for LUNA and UST is they only have one correlation. So all of the UST price is 100% based on the LUNA price.”

Sun continued by saying this is not the case with USDD, which makes use of a hybrid mannequin, taking account of different stablecoins out there, to make sure its value stability. This refers to with the ability to mint and burn from/to 4 totally different property, together with USDT and USDC stablecoins.

“We take advantage of all the stablecoins in the market to guarantee the decentralization. But also, at the same time, guarantee the safety of the stablecoin.”

Also, as defined by KuCoin, USDD operates utilizing a decentralized value oracle to estimate the USDD value. Super Representatives (SR), who vote on the present fee in U.S. {dollars}, underpin this mechanism.

The voting course of requires tallying votes and calculating weighted medians as the proper change fee. SRs that vote inside the usual deviation of the chosen median are rewarded, thus incentivizing correct voting among the many SRs.

Then, just like different algorithmic pegging mechanisms, in situations of USDD exceeding $1, the protocol permits customers to swap $1 of TRX (or different qualifying property) for 1 USDD to revenue from arbitrating the value distinction. The added USDD provide will drop the value whereas the TRX (or one other asset) is burned.

Likewise, when USDD drops beneath $1, the reverse state of affairs happens the place customers swap 1 USDD for $1 of TRX (or different qualifying property,) the place the protocol burns the USDD to scale back provide, pushing the value increased in direction of $1.

Overcollateralization of backing property

Moreover, Sun additionally identified that the collateralized property backing USDD exceed the availability. In principle, this implies token holders can all the time liquidate into {dollars}.

“This provides a very good counter for the participants in the market… Right now, the overall collateralized percentage for USDD is at 300%, so it’s very healthy.”

The tdr.org web site exhibits the USDD provide at $747.4 million, with collateral consisting of TRX, BTC, USDT, and USDC totaling $2.3 billion in worth – equating to a ratio of 307%.

Summing up, Sun mentioned as a result of the mint burn mechanism depends on a number of property, not simply TRX, along with the backing of an over-collateralized reserve, USDD is not like UST.

Posted In: People, Stablecoins



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