The USDD stablecoin, heavily backed by crypto entrepreneur Justin Sun, is the latest token under immense pressure in this bear market. In the early hours of Monday, the acclaimed stablecoin dropped to a new low of $0.968, its lowest level in the past month.
According to its official website, the Decentralized USD (USDD) stablecoin is issued and managed by the Tron DAO Reserve. The entity maintains a basket of assets, mainly in Tron (TRX), USDC, and Bitcoin (BTC).
USDD has initially modeled off the collapsed Terra (UST) algorithmic stablecoin. However, the latter’s downfall led the USDD project to fundamentally change its branding from an algorithmic stablecoin to an overcollateralized type.
While the current market value of issued USDD tokens is approximately $753 million, the total value of reserve assets sits at $1.45 billion. The reserve is thus slightly more than twice (200%) the total issuance value, giving the sense of “over-collateralization.”
Is USDD another UST in the making?
Despite the increased “overcollateralized” approach, the growing pressure on the USDD peg raises concerns among investors fearing another UST-like collapse. In an apparent mimic of Terra founder Do Kwon, Justin Sun recently tweeted that he was deploying more capital to save the stablecoin’s peg.
It is noteworthy that the total value of Tron’s TRX coin used as reserve assets is worth an estimated $567 million (appr. 45%) under the right liquidity conditions. On the other hand, the BTC and USDC collateral consists of roughly 55% of total reserves with a $629 million value, less than the full value of USDD tokens in circulation.
The ongoing USDD de-peg might indicate a loss of investor confidence in the ability of the Tron DAO Reserve to fulfill its obligations in the event of a bank run.
Under the current reserve vs. issuance dynamics, TronDAO would need to market-sell all its BTC and USDC holdings and $95 million worth of TRX tokens to match the issued supply. Any move or increased market fears in that direction would impact the price of TRX and potentially spill over to the rest of the crypto market.
Meanwhile, the USDD stablecoin has spent the more significant part of the last 30 days below its supposed $1 peg. The token last traded at parity with the dollar on 8th November.
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