Tron founder Justin Sun is assuring users that 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 â launched in 2022 as a competitor to Terraâs now defunct UST token â is now backed primarily by Tronâs native token TRX
+0.80%
.
Sun said that USDD wasnât capital efficient with âa long-term collateralization rate exceeding 300%,â explaining why the group that oversees USDDâs collateral, TRON DAO Reserve, withdrew approximately 12,000 BTC
-1.12%
.
âRegarding 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 withdraw any amount freely without anyone's approval,â Sun said in a message on the social media platform X.
The recent change in strategy rekindles questions and concerns that have long surrounded the algorithmic stablecoin, particularly over its decentralization and Sunâs influence. Launched in 2022, USDD is supposed to be managed by a DAO, but almost no decisions regarding the stablecoin have been put to a community vote.
X users noticed that the announcement regarding USDDâs collateral came from Justin Sunâs personal account rather than the Tron DAO Reserve. Further, to date, DAO members have only voted on one question, whether to use burned TRX tokens â in May 2023.
Last year, Bluechip, which calls itself the âMoodyâs of stablecoins,â gave USDD its lowest stablecoin stability ranking, in particular noting its heavy reliance on TRX and lack of transparency. âUSDD does not have a governance system. USDD holders have no legal or code-based protection and are at the mercy of Tron DAO Reserve,â it wrote in its report.
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There are about $744 million USDD tokens in circulation, making it the seventh-largest stablecoin and one of the 100 largest cryptocurrencies by market capitalization. It has $1.7 billion of TRX and USDT stablecoin in its reserves, giving it a collateralized ratio of over 230%, meaning itâs backed by double the amount of assets than stablecoins in circulation.
However, Bluechip estimated USDDâs collateralization is just 53%, in part because the Justin Sun-backed crypto exchange Huobi also claimed to control the address where USDDâs former bitcoin reserves were stored. The report noted nearly all of USDDâs reserves were kept in a multi-sig rather than the USDD smart contract, meaning the assets could easily be moved.
TRX, the tenth-largest cryptocurrency, has a market cap of over $13 billion, according to The Blockâs price page. In a FAQ post published in 2022, USDDâs DAO wrote âprice swings in TRX do not have a substantial correlation to USDDâs price stability, so every USDD holder is advised to remain rational and not to be misled in the face of market rumors.â
Tron representatives have not responded to a request for comment.
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