The Tron network recently launched an algorithmic stablecoin, USDD. This happened even as the coin market was shocked by the crash of the Terra stablecoin, UST, another algorithmic stablecoin.
In a recent blog post by the Tron founder, Justin Sun, he said that the Tron algorithmic stablecoin will take advantage of the flaws of the Terra USD to make sure that it builds the most successful stablecoin in the market.
Sun highlighted the potentials of algorithmic stablecoins saying that the Tron team is aware that this class of stablecoins is “hard”. He said that the Tron team decided to build a stablecoin like UST after witnessing the dramatic rise of Terra.
“At its peak, circulating UST supply eclipsed all decentralized competitors by almost 2x”
The Flaws of Terra LUNA (UST)
According to Sun, despite Terra’s seeming success with its stablecoin, UST was a high risk venture for the network because it was inadequately backed by assets. He said that this was mainly due to the fact that the assets backing UST were not just inadequate, they were also volatile. The lack of hindsight resulted in the crash of the UST.
“Despite the Luna Foundation Guard’s best efforts, a majority of UST’s collateral consisted of LUNA, a highly volatile asset, and less than 15% of UST was collateralized by Bitcoin” said Sun.
He added that:
“After thinking through the challenges UST faced and learning from them, we set out to build a better decentralized stablecoin.”
Strategy for A Successful USDD
Sun said that some of the strategies that the Tron team will employ to make sure that USDD becomes successful are:
USDD will be over collateralized by high and low value assets. These assets are USDC, USDT and Bitcoin. These are high target collateral that will be used to back USDD.
The Tron Advantage
The Tron founder said that unlike Terra, Tron is the blockchain hosting the most fiat-backed stablecoins in the industry. He said that the high adoption rate of De-Fi platforms built on the Tron blockchain is another merit that puts the Tron network at an advantage as a host of a potentially successful stablecoin, having gained unparalleled liquidity and high adoption for its ecosystem.
Phased Increase of USDD Supply
Sun said that another strategy that Tron DAO will employ is that USDD supply will be increased gradually. Not taking away from the utility of the ecosystem, the organization has employed the services of top developers to deliver the vision for an algorithmic stablecoin on the Tron network.
TRX holders will benefit from the success of USDD, even though the real life use cases of the Tron ecosystem will continue to confer value on Tron.
USDD, according to Justin Sun, is an algorithmic stablecoin pegged to the USD. He added that in the phased supply of the coin, only whitelisted members of the Tron DAO Reserve (TDR) will have access to it. This is to ensure that USDD has a responsive monetary system.
The update said:
” Issuance and redemption is done via a dynamic exchange between TRX and USDD. This exchange allows users to burn $1 of TRX in exchange for the right to mint 1 USDD.”
Missteps of Terra Tron Will Avoid
Sun highlighted that the growth of Terra USD was not organic because the platform attracted investors mainly from its Anchor protocol 20% fixed yield.
The Tron USDD phase one supply will involve staking on Curve, Ellipsis, SunSwap, SUN.io, JustLend and other staking platforms. The liquidity providers will be rewarded with 30% APR on their deposits for providing liquidity for the USDD in the platforms.
“However, this phase will be capped, with a maximum of 2b USDD mintable.” This cap will be adjusted in the phase two of the rollout. The Tron stablecoin will be made interoperable as progress is made on the roadmap.