Justin Sun believes that Tron’s native stablecoin, USDD, is inherently safer and more secure than Terra’s UST.
On May 9, the UST lost its dollar peg, triggering the collapse of its pegged asset, Terra LUNA. This caused devastation across the broader cryptocurrency industry, including an all-out massive capital outflow followed by a string of CeFi bankruptcies.
Throughout this period, algorithmic stablecoins were demonized as inherently fragile. But despite some similarities between USDD and UST, both are algorithmically fixed and have higher capabilities. APY YieldSun claims USDD is different.
USDD mechanism to keep the peg
In a recent interview conducted by coin geckoRegarding the difference between USDD and UST, Sun explained that UST is completely dependent on LUNA. That is, there was only one determining factor for stabilizing the pegging mechanism.
“LUNA is a blockchain token, and LUNA can be used to create UST. But the problem with LUNA and UST is that there is only one correlation. 100% based on
Sun said this is not the case for USDD, which uses a hybrid model that considers other stablecoins in the market to ensure price stability. This refers to the ability to issue and burn from or to four different assets, including USDT and USDC stablecoins.
“We leverage all stablecoins on the market to ensure decentralization.
Also, as explained KucoinUSDD uses a distributed price oracle to estimate the USDD price. A Super Representative (SR), who votes for the current rate in USD, underpins this mechanism.
The voting process requires tallying the votes and calculating the weighted median as the correct exchange rate. SRs that vote within the standard deviation of the chosen median are rewarded, thus promoting accurate voting among SRs.
Then, like any other algorithmic pegging mechanism, USDD Above $1, users can exchange $1 of TRX (or other eligible assets) for 1 USDD to benefit from price differential arbitration. The added USDD supply drives the price down while TRX (or another asset) burns.
Similarly, when USDD drops below $1, the reverse situation occurs where users swap 1 USDD for $1 of TRX (or other eligible asset), causing the protocol to burn USDD to reduce supply and drive the price down. Push up towards $1.
Over-collateralization of underlying assets
Additionally, Sun noted that the collateral assets backing the USDD are in excess of supply. In theory, this means that token holders can liquidate to dollars at any time.
“This provides a very good counter for market participants…Currently, USDD has an overall collateralization rate of 300%, so it is very healthy.”
of tdr.org According to the website, the supply of USDD is $747.4 million, with collateral composed of TRX, BTC, USDT, and USDC totaling $2.3 billion, representing a 307% ratio.
In summary, Sun said USDD differs from UST because the Mintburn mechanism relies on multiple assets, not just TRX, in addition to backing an overly collateralized reserve. .