2 years ago
Justin Sun believes Tron-native stablecoin USDD is inherently safer and much unafraid than Terra’s UST.
On May 9, UST mislaid its dollar peg mounting disconnected a illness successful its pegging asset, Terra LUNA. This triggered devastation crossed the broader crypto industry, including wide superior outflows crossed the committee and a consequent spate of CeFi bankruptcies.
Throughout this period, algorithmic stablecoins were demonized arsenic intrinsically vulnerable. But contempt immoderate drafting parallels betwixt USDD and UST, arsenic some are algorithmically pegged and feature(d) precocious APY yields, Sun argues that USDD is different.
USDD mechanics to support peg
In a caller interrogation conducted by CoinGecko, Sun expounded connected the differences betwixt USDD and UST by saying UST was wholly babelike connected LUNA. In different words, determination was lone a azygous determinant to stabilize the pegging mechanism.
“LUNA is the token for the blockchain, you tin usage LUNA to mint UST. But the occupation for LUNA and UST is they lone person 1 correlation. So each of the UST terms is 100% based connected the LUNA price.”
Sun continued by saying this is not the lawsuit with USDD, which uses a hybrid model, taking relationship of different stablecoins successful the market, to guarantee its terms stability. This refers to being capable to mint and pain from/to 4 antithetic assets, including USDT and USDC stablecoins.
“We instrumentality vantage of each the stablecoins successful the marketplace to warrant the decentralization. But also, astatine the aforesaid time, warrant the information of the stablecoin.”
Also, arsenic explained by KuCoin, USDD operates utilizing a decentralized terms oracle to estimation the USDD price. Super Representatives (SR), who ballot connected the existent complaint successful U.S. dollars, underpin this mechanism.
The voting process requires tallying votes and calculating weighted medians arsenic the close speech rate. SRs that ballot wrong the modular deviation of the chosen median are rewarded, frankincense incentivizing close voting among the SRs.
Then, akin to different algorithmic pegging mechanisms, successful instances of USDD exceeding $1, the protocol enables users to swap $1 of TRX (or different qualifying assets) for 1 USDD to nett from arbitrating the terms difference. The added USDD proviso volition driblet the terms portion the TRX (or different asset) is burned.
Likewise, erstwhile USDD drops beneath $1, the reverse concern occurs wherever users swap 1 USDD for $1 of TRX (or different qualifying assets,) wherever the protocol burns the USDD to trim supply, pushing the terms higher towards $1.
Overcollateralization of backing assets
Moreover, Sun besides pointed retired that the collateralized assets backing USDD transcend the supply. In theory, this means token holders tin ever liquidate into dollars.
“This provides a precise bully antagonistic for the participants successful the market… Right now, the wide collateralized percent for USDD is astatine 300%, truthful it’s precise healthy.”
The tdr.org website shows the USDD proviso astatine $747.4 million, with collateral consisting of TRX, BTC, USDT, and USDC totaling $2.3 cardinal successful worth – equating to a ratio of 307%.
Summing up, Sun said due to the fact that the mint pain mechanics relies connected aggregate assets, not conscionable TRX, successful summation to the backing of an over-collateralized reserve, USDD is not similar UST.
The station Justin Sun claims algorithmic stablecoin USDD is safer, much unafraid than Terra’s UST appeared archetypal connected CryptoSlate.
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