The USDD stablecoin issued by Tron has recently been often mentioned in cryptocurrency news. Media attention and social media spotlight on that level for a token that is only a month old should have seemed like a major accomplishment. But not for USDD, which is already in a precarious position following the collapse of sister algorithmic stablecoin terraUSD (UST) last month.
Under investigation, Tron is currently in a desperate state to demonstrate that USDD is immune from the flaws that ultimately resulted in the demise of terraUSD. Of course, the ultimate outcome of these efforts will only become apparent with time.
In the meanwhile, this comprehensive guide is a wonderful place to start if you want to learn more about the USDD stablecoin.
What does algorithmic stablecoin mean?
Stablecoins are digital assets that aim to tie their market value to another asset, such a fiat currency, as you may already know. Stablecoins like USDT and USDC that are pegged to the dollar have fixed pricing that are always set at $1.
Each stablecoin has unique mechanics for keeping the peg in place. For instance, USD reserves are "over-collateralized" with respect to currencies like USDT and USDC. In other words, the total volume of USDT or USDC reserves held by their respective issuers is equal to or greater than the total amount of USDT or USDC in circulation.
A stablecoin issuer may decide to back their stablecoin with additional reserve assets in a similar manner. A commodity like gold or even another cryptocurrency like bitcoin or ethereum might be used as the reserve asset. For instance, the decentralized stablecoin DAI from MakerDAO is heavily collateralized and supported by ether (ETH) reserves.
a step forward from traditional stablecoins?
Since 2021, a brand-new stablecoin kind has appeared on the cryptocurrency market. This new class of asset, known as algorithmic stablecoins, employs an entirely new method to keep its peg. USD Digital (USDD), TerraUSD (UST), Frax (FRAX), NeutrinoUSD (USDN), and Magic Internet Money are some instances of algorithmic stablecoins (MIM).
Because these assets produce more coins when the price rises and buy them off the market when the price falls, they are known as algorithmic assets. Depegging is intended to be avoided here by controlling the supply-demand ratio.
These assets are uncollateralized in their most basic form, which is why they are occasionally also referred to as "uncollateralized stablecoins." However, USDD asserts that it is excessively collateralized (details below).
What is USDD stablecoin?
On May 5, 2022, USD Digital (USDD) made its official debut as a stablecoin on the Ethereum, Tron, and BNB Chain blockchains. It is fixed at a 1:1 ratio to the U.S. dollar, which means that 1 USDD is always expected to be equal to $1. This means that USDD maintains its value at a fixed exchange rate to the U.S. dollar.
USDD doesn't have a lot of history because it's just been around for a month. It does, however, have a lot in common with UST, the Terra stablecoin that ruled the roost until its demise as an algorithmic stablecoin. In a little bit, we'll get into the specifics, such as how USDD functions and its underlying tokenomics, but first, let's have a look at the people who created the token.
The USDD's creators
In order to duplicate the success of Terra UST, which at one point was the third-largest stablecoin by market size, Tron, a blockchain-based decentralized digital platform, created USDD (lagging only behind USDT and USDC).
Tron is not the new kid on the block, although USDD is. Justin Sun founded Tron in 2017, and its in-house digital currency, Tronix (TRX), is already well-known in the cryptocurrency industry. The network uses blockchain technology and its offshoots to hasten the decentralization of the internet.
The Tokenomics of USDD
The USDD tokenomics are not that complicated. You can effortlessly exchange your TRX coins for USDD because the token is based on the Tron network.
The token's value changes over time dependent on variables like the demand-supply ratio and the value of the US dollar. However, as we discussed in the last section, the USDD protocol has a built-in mechanism that regulates the token's price whenever it depegs from the dollar.
The USDD stablecoin has a circulating supply of slightly over $703 million as of the time of writing, and over $160 million worth of the token has been exchanged in the previous day.
USDD or UST
USDD and UST are both algorithmic stablecoins, and they have a lot in common. Even the roadmaps for the two tokens are remarkably similar. Justin Sun, though, is adamant that there is a limit to how similar things may be. In a recent blog post, he claimed that Tron was making every effort to protect USDD from the flaws that caused the UST catastrophe.
The fact that LUNA made up the great majority of UST's collateral was one of the primary flaws of the Luna-terraUSD ecosystem. Only 15% of the collateral was made with bitcoin. Now since LUNA was an extremely volatile asset, it was clear that the basic basis of UST's stability was precarious.
Is it wise to invest in USDD?
We anticipate that by this point, you have a good understanding of USDD and how it functions. Whether it is the best investment option for you is the next logical inquiry at this point.
Overall, it appears that Tron is indeed taking a variety of steps to guarantee that USDD's value is maintained even under challenging circumstances. It's a good move in the right direction that the token will now be collateralized by BTC, USDT, and TRX in addition to TRX.
In light of everything, USDD might be worthwhile to research.
To state the obvious, all cryptocurrency investments involve some level of risk, and USDD is no exception. As a result, always conduct your own research and, if necessary, consult a financial expert before investing.
