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.
CBW - External Analyst