The Decentralized USD (USDD) stablecoin from Tron (TRX) lost its peg with the US dollar for a few days now. Today marks the third day in a row that USDD is worth less than $1. Because USDD much like TerraUSD (UST), which we all know by now how it ended, some analysts and investors are gearing up for another total meltdown of a stablecoin project.
USDD falters
USDD is a algorithmic stablecoin which basically works in the same way as UST on the Terra (LUNA) network. That means once the price of USDD hits below $1, the system will allow users to trade 1 USDD for 1 TRX. This same system caused the entire ecosystem to collapse during Terra’s demise.
Therefore, it is quite worrisome that the USDD price has been below $1 for a few days now. At the time of writing, 1 USDD is worth only $0.97 cents. In fact, this morning, USDD’s price was just $0.95. The pressure on the organization behind USDD, the Tron DAO Reserve, is therefore enormous at the moment.
A repeat of the UST meltdown?
Two days ago Justin Sun, founder of Tron, announced that the Tron DAO Reserve has committed at least $2 billion to secure USDD’s peg to the US dollar. They have also bought more than a billion USDC to secure the existing reserve. Another measure was the withdrawal of 2.5 billion TRX from Binance to prevent traders from flocking a short position would open.
To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve will withdraw 2.5 billion #TRX out of binance.
— TRON DAO Reserve (@trondaoreserve) June 15, 2022
Despite all these measures, a few days later, USDD has still not recovered in value. On the contrary, USDD actually seems to be falling further and further.
Funding rate of shorting #TRX on @binance is negative 500% APR. @trondaoreserve will deploy 2 billion USD to fight them. I don’t think they can last for even 24 hours. Short squeeze is coming. pic.twitter.com/VRExM6UK70
— HE Justin Sun 🅣🌞🇬🇩 (@justinsuntron) June 13, 2022
The further USDD sinks, the more difficult it will be for the Tron DAO Reserve to re-establish its peg with the dollar. While it’s too early to talk about another stablecoin going under, the whole story is suspiciously similar to what we saw at UST just over a month ago.