During the past year, many stablecoins showed signs of weakness. Not every stablecoin has gone to zero, but many coins have lost their link with the underlying one or even several times. This is often the US dollar. Tron’s USDD is one of the most controversial stablecoins you can get. The token has now become unstable again.
Tron’s USDD has volatile onepledge
The whole point of stablecoins is that they are stable against the underlying. Unfortunately, this is sometimes a bit more complicated than you might think. For some stablecoin issuers, it is enticing not to hold the assets that the stablecoin is trying to “copy” the value of.
The USDD stablecoin is a good example of this. According to the website, the custodian holds 200.93% of USDD’s reserves and is thus “over-collateralized‘. But for this collateral, instead of dollars, the Tron DAO Reserve, the custodian, holds Tron’s own TRX token and bitcoin (BTC). These are both volatile cryptocurrencies that have fallen sharply in the past year.
Third, the organization holds nearly 400 million USDC, which many major companies consider to be high-quality collateral. But perhaps this aspect is even more striking. USDD is a stablecoin, yet it holds another stablecoin to cover the value of USDD. At the time of writing, USDD has a total market value of no less than $708 million and the coin is ranked 57 in the crypto ranking.
USDD worth less than $1 again
The token has already lost its link to the US dollar twice since its inception in May. In June, the token fell by more than 8% and in November by about 4%. Now it’s down about 3% again. Should the crypto market fall sharply again, USDD collateral may again not be enough to cover the value. That has happened before.
Ironically, the token was created right after the crash of the Terra (LUNA) ecosystem. The UST stablecoin has collapsed after panic over the crypto’s stability. As a result, many investors wanted to sell their UST as quickly as possible, with all the consequences that entailed.