Is USDD headed for the same systemic problems that brought UST down

The world has barely recovered from the UST stablecoin crash and one more comparable menace is already on the horizon. This time within the type of the USDD stablecoin that was launched in Might by the Tron DAO.

Tron just lately boasted that USDD is now over-collateralized by 200% in an try to fortify its greenback peg. Nonetheless, critics have been fast to notice that USDD’s method is kind of much like what Terra did with UST. The criticism intensified after Tron founder Justin Solar famous that the Tron DAO reserve used 100 million USDT from its reserve to buy extra TRX and BTC reserves.

.@trondaoreserve moved #USDT reserve to buy extra #BTC and #TRX as reserve. https://t.co/mkK2aEAR2n

— H.E. Justin Solar 🅣🌞🇬🇩 (@justinsuntron) June 7, 2022

Some Twitter customers shortly famous the similarities between Tron DAO’s measures and people of Do Kwon earlier than the LUNA and UST crashes. Terra went on a Bitcoin shopping for spree price billions forward of the UST crash in an try to construct a robust reserve to again the stablecoin peg. Sadly, its efforts triggered a large Bitcoin sell-off when the crash finally got here.

One critic famous that Tron DAO appears to be like like it’s headed for a UST path following its newest announcement. The issues are additional enhanced by the truth that USDD has an analogous mint and burn mechanism as that of UST. Because of this it’s prone to an analogous demise spiral impact in case of an assault much like that of its counterpart.

USDD’s 0vercollateralization 

Tron DAO stands agency on its over collateralized method. It even boasts that it’s extra collateralized than rival decentralized stablecoin DAI and thru totally different digital belongings. The true query is whether or not all this can be sufficient to chase away a demise spiral occasion.

The similarity between UST and USDD’s mechanism is definitely a degree of concern reiterated by some critics on Twitter. It even gives high staking yields (as a lot as 30%) identical to UST did, to encourage participation.

The one distinction proper now could be that Tron DAO presently has simply above $714 million price of reserves. That is notably decrease than the billions reserved for UST previous to the crash. Though USDD boasts collateralization by a wide range of belongings, the underlying downside stays. Such an occasion would probably set off extreme minting of TRX which might then lead to a diluted worth.

The overcollateralization particularly with different stablecoins offers USDD holders some assurance that they’ll shortly exit and keep away from enormous losses. Nonetheless, the fact stays that USDD’s mint and burn method is simply as flawed as that of UST. Solely time will inform if  USDD is certain for a similar destiny as UST.