TRON USDD falls, Tron DAO deploys $2B from reserves to protect them


On Monday in a
tweet, Tron founder Justin Sun confirmed that Tron DAO Reserve (TDR), which is the
entity that supervises TRON-based stablecoins, would deploy $2 billion. This will
protect TRON’s decentralized stablecoin, USDD from de-pegging. USDD had lost
its intended $1 peg, dipping to much low as 91 cents.
TRX, the native token of Tron, was shorted
heavily on Monday. In crypto, shorting happens through margin trading. Due
to this short squeeze, traders betting on a decline, are forced to close their
positions by buying back the underlying token. According to Justin Sun, the
funding rate for shorting Tron blockchain's native TRX on major crypto exchange
Binance exchange hit negative 500%. This rate reflects that many investors are
willing to get into that trade. The move from traders could be due to the
algorithmic stablecoin USDD, breaking away slightly from its promised $1 peg.
As per data from
Coinmarketcap, when overnight the price of TRX fell more than 16%, Sun wrote,
"I don't think they can last for even 24 hours. Short squeeze is
coming,". He further added, TronDAO will deploy $2 billion from reserves
to protect them. In a tweet TronDAO said it added $650 million of USDC to
its reserve. By stabilizing TRX prices with cash injections from the DAO
Reserve, short trades could indeed be countered.
The project had
been preparing for potential market turbulence. Initially, it was designed to
maintain its peg to the dollar algorithmically albeit with some backing. To
this, in June, Sun said that USDD would now be overcollateralized. During press
time, USDD was changing hands at around 99 cents. Although it did not recover its
dollar peg. The price of TRX declined around 17% in the last 24 hours. TRX,
is trading below its intended $1 peg. However, the stablecoin de-pegged, losing
nearly 1% from its peg of $1. Tron's stablecoin, USDD, was trading at $0.98 at
its lowest point on the crypto exchange KuCoin, indicating a 9% drop from its
supposed peg, according to TradingView.
Justin Sun
informed the community that a planned move had been accelerated, and the
decentralized stablecoin USDD was modified to protect. The collateral of USDD
stands at $2 billion and the supply in circulation of USDD is $723 million, as per
the official TronDAO website. This suggests that it holds sufficient capital to
prop up the stablecoin by using reserves to buy USDD.
On Saturday $50
million worth of bitcoin and TRX had been bought as per Tron DAO Reserve. Over
the past two weeks, Tron's decentralized stablecoin made headlines for the over-collateralization of USDD. Using cryptocurrency and other stablecoins as
collateral, USDD was overcollateralized, with guaranteed maintenance at a
minimum of 130% of its issuance. Tron has said that it will start publishing
real-time collateral ratio updates on its DAO Reserve website starting June 5. On
Monday morning the ratio was 280%.
About USDD :
Decentralized
USD (USDD) is an algorithmic stablecoin on a multipurpose smart contract
blockchain, Tron. In April through an open letter Justin Sun disclosed plans to
roll out this decentralized algorithmic stablecoin USDD on the TRON blockchain
network. The coin was launched by Tron in early May. It is supposed to keep a
one-to-one exchange rate with the U.S. dollar. Users can send 1 USDD to the
system and receive 1 USD worth of TRX when USDD is less than 1 USD. Again,
USDD's price exceeds 1 USD, so users and arbitrageurs can send TRX for 1 USD
and receive USDD. It is based on an elaborate automated balancing mechanism
which involves creating and destroying USDD and TRX units alternately.
Justin Sun
detailed that USDD will be “a fully decentralized stablecoin underpinned by
mathematics and algorithms.” USDD will not rely on any centralized entity for
storage, redemption, or management. A mint-and-burn mechanism, involving
Tron's native token TRX, will be used to maintain USDD tokens' peg to the US
dollar. As collateral, it also holds cryptocurrencies, such as TRX, bitcoin
(BTC), and stablecoins, such as Tether's USDT and Circle's USDC, in a standby
fund known as the TronDAO reserve.

Indrani Bose
CBW - External Analyst
INDIA