Wednesday, December 6, 2023

USDD Stablecoin Slips From Dollar Peg In Market Downturn

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The USDD stablecoin slips from the dollar peg during the recent market downturn and hit $0.9764 as we can see more today in our latest Tron news.

Amid the Monday crypto crash, Tron’s algorithmic USDD stablecoin lost its dollar peg and slipped to a low of $0.9764 as per the data from CoinMarketCap. At the time of writing, USDD has yet to recover the dollar peg and it is hovering near $0.98. according to the Tron founder Justin Sun, USDD’s dependence happened because of the large number of short-sellers who targeted TRX as the native token of Tron, on Binance. He added that the Tron DAO Reserve pledged as much as $2 billion to fight the short-sellers. He tweeted:

“Funding rate of shorting TRX on Binance is negative 500% APR. [Tron DAO Reserve] will deploy 2 billion USD to fight them. I don’t think they can last for even 24 hours. [A] short squeeze is coming.”

The short squeeze happens when traders bet on the price of an asset to go down but the price goes up and forces them to close their positions. TRX dropped by 16% on Modany and hit a new low of $0.58 before rebounding to the current value of $0.60 or down by 5% on the day. USDD is an algorithmic stablecoin that is pegged to another asset, most often the dollar, using a smart contract algorithm.

Unlike stablecoins such as Tether or USDC, USDD wasn’t initially backed by any reserves and maintained its dollar peg via arbitrage and traded between USDD and TRX. However, the similar stablecoin Terra UST collapsed last month and wiped out $60 billion in investor wealth in one week and USDD changed its model to include collateral in the form of TRX, BTC, and USDC reserves. The team behind the USDD stablecoin promised a minimum collateral ratio of 130% which was supposed to be higher than the 120% collateral ratio that was maintained by MakerDAo’s stablecoin.

The Tron DAO reserve announced a number of measures that are meant to further protect the overall blockchain industry and the market. This included two seaprate purchases of 100 million USDC each after another purchase of 650 million which increased the USDC supply on Tron to $2.5 billion. According to the Tron DAO Reserve website, the collateral ratio of the stablecoin is set at 248%.

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