On Wednesday, the Tron DAO reserve fund removed nearly $750 million worth of Bitcoin backing the USDD stablecoin, with Tron founder Masayoshi Son assuring users that there is nothing to worry about.
Launched in 2022 as a competitor to Terra’s now-defunct UST token, this algorithmic stablecoin is now primarily backed by Tron’s native token, TRX.
The move raised concerns about USDD’s decentralization.
Tron founder Justin Sun assured users there is nothing to worry about after the Tron DAO reserve removed nearly $750 million worth of Bitcoin backing the USDD stablecoin on Wednesday. The algorithmic stablecoin, launched in 2022 as a competitor to Terra’s UST token, is now primarily backed by Tron’s native token.
Sun said that USDD’s “long-term collateralization ratio exceeds 300%” and is not capital efficient, which also explains why the TRON DAO reserve organization responsible for overseeing USDD collateral withdrew about 12,000 BTC.
At the same time, the popularity of Black Myth: Wukong also caused a shock in the cryptocurrency market. Influenced by this, the meme coin "SunWukong" with the theme of "Sun Wukong" rose rapidly. SunWukong coin is a new meme coin based on the Tron network. The founder of Tron is Justin Sun. Its price soared from about US$3,000 to US$17 million in just 12 hours, an increase of more than 566,000%, and then fell by more than 42% overall.
“Regarding the decentralized stablecoin USDD, its mechanism is similar to MakerDAO’s DAI and is not mysterious. When your collateral exceeds the amount specified by the system (usually between 120%-150%, depending on the vault), any collateral holder can freely withdraw any amount without anyone’s approval,” Sun said in a message on the social media platform X.
The recent strategic change has revived long-standing questions and concerns surrounding algorithmic stablecoins, especially concerns about their decentralization and Son’s influence. USDD was supposed to be governed by a DAO when it was launched in 2022, but almost no decisions about the stablecoin have been made through a community vote.
X user noticed that the announcement about USDD collateral came from Justin Sun’s personal account, not the Tron DAO reserves. In addition, DAO members have voted on only one question so far, which is whether to use the burned TRX tokens in May 2023.
Last year, Bluechip, which calls itself the “Moody’s of Stablecoins,” ranked USDD as the lowest stablecoin in stability, singling out its heavy reliance on TRX and lack of transparency. “USDD has no governance system. USDD holders have no legal or code protections and are at the mercy of the Tron DAO Reserve,” it wrote in the report.
With a circulation of about $744 million, USDD tokens are the seventh-largest stablecoin and one of the top 100 cryptocurrencies by market cap. It has $1.7 billion worth of TRX and USDT tokens in its reserves, giving it a collateralization ratio of over 230%, meaning it is backed by more than twice as many assets as any stablecoin in circulation.
However, Bluechip estimates that USDD’s collateralization rate is only 53%, partly because Huobi, a cryptocurrency exchange backed by Justin Sun, also claims to control the storage address of USDD’s former Bitcoin reserves. The report points out that almost all USDD reserves are kept in multi-signature (multi-sig) rather than USDD smart contracts, which means that these assets can be easily transferred.
According to The Block’s price page, TRX is the tenth-ranked cryptocurrency with a market cap of over $13 billion. In a 2022 FAQ post, USDD’s DAO wrote: “TRX’s price fluctuations have no substantial correlation with USDD’s price stability, so it is recommended that every USDD holder remain rational and not be misled by market rumors.”
