TRON Plans To Increase Its USDD Collateral After Terra Collapse
After the crash of Terra’s algorithmic stablecoin last month, TRON this morning announced a plan to significantly increase the amount of capital backing up its own stablecoin.
TRON’s algorithmic stablecoin USDD was launched on May 5. It was originally designed to maintain its peg to the US dollar algorithmically, with some level of backing. After the Terra collapse, USDD will now be overcollateralized, said TRON founder Justin Sun.
A reserve which consists of cryptocurrencies and other stablecoins has been increased and will be maintained at a minimum of 130% of the total amount of USDD in issuance, according to Sun.
TRON described that collateral ratio as “guaranteed,” and said that it would begin publishing real-time updates on the collateral ratio on TRON DAO Reserve’s website.
According to a TRON spokesperson, the reserve contains 14,040 bitcoin (around $418 million), 140 million USDT, and 1.9 billion TRX, as well as 8.29 billion TRX in a burning contract.
Sun commented:
“We want to upgrade USDD to a hybrid model. So on the one side we have an algorithmic stablecoin — an algorithm to make the stablecoin stable — on the other hand we have TRON DAO Reserve.”
USDD was designed to incentivize arbitrageurs to keep its price pegged to that of the US dollar through trading between TRX, TRON’s token, and USDD — following the algorithmic stability blueprint.
Similar to Terra, TRON had also hinted its intent to establish a reserve of billions of dollars’ worth of bitcoin and other cryptocurrencies to support USDD in extreme market conditions.
However, that combination of safeguards didn’t at the end work for Terra’s UST. The stablecoin, which was the third largest by issuance prior to its collapse, fell from its dollar peg in mid-May, wiping out effectively Terra’s LUNA with it and with it some $40 billion in value in a matter of few days. Billions of dollars in bitcoin were sold and unprecedented volumes of Terra’s native token LUNA issued in an attempt to restore the peg, but without success.
Despite all that, Sun believes in USDD — which has already reached $667 million in total circulating supply — if it can be suitably backstopped.
He said:
“The reserve backing we’re using right now is highly diversified. It includes bitcoin and all different kinds of stablecoin. USDC will be a part of our reserve, but it will only be a small part of our reserve.
All the Bitcoin addresses will be signed by signature so everybody will know those bitcoins belong to us”
TRON’s full list of the assets in the reserve consists of BTC, TRX, USDC, USDT, TUSD and USDJ.
