Justin Solar believes Tron-native stablecoin USDD is inherently safer and safer than Terra’s UST.
On Might 9, UST misplaced its greenback peg setting off a collapse in its pegging asset, Terra LUNA. This triggered devastation throughout the broader crypto trade, together with mass capital outflows throughout the board and a subsequent spate of CeFi bankruptcies.
All through this era, algorithmic stablecoins have been demonized as intrinsically weak. However regardless of some drawing parallels between USDD and UST, as each are algorithmically pegged and have(d) excessive APY yields, Solar argues that USDD is totally different.
USDD mechanism to keep up peg
In a latest interview performed by CoinGecko, Solar expounded on the variations between USDD and UST by saying UST was wholly depending on LUNA. In different phrases, there was solely a single determinant to stabilize the pegging mechanism.
“LUNA is the token for the blockchain, you should use LUNA to mint UST. However the issue for LUNA and UST is that they solely have one correlation. So the entire UST worth is 100% primarily based on the LUNA worth.”
Solar continued by saying this isn’t the case with USDD, which makes use of a hybrid mannequin, taking account of different stablecoins out there, to make sure its worth stability. This refers to having the ability to mint and burn from/to 4 totally different belongings, together with USDT and USDC stablecoins.
“We reap the benefits of all of the stablecoins out there to ensure the decentralization. But additionally, on the identical time, assure the protection of the stablecoin.”
Additionally, as defined by KuCoin, USDD operates utilizing a decentralized worth oracle to estimate the USDD worth. Tremendous Representatives (SR), who vote on the present price in U.S. {dollars}, underpin this mechanism.
The voting course of requires tallying votes and calculating weighted medians as the right trade price. SRs that vote inside the usual deviation of the chosen median are rewarded, thus incentivizing correct voting among the many SRs.
Then, much like different algorithmic pegging mechanisms, in cases of USDD exceeding $1, the protocol permits customers to swap $1 of TRX (or different qualifying belongings) for 1 USDD to revenue from arbitrating the worth distinction. The added USDD provide will drop the worth whereas the TRX (or one other asset) is burned.
Likewise, when USDD drops under $1, the reverse scenario happens the place customers swap 1 USDD for $1 of TRX (or different qualifying belongings,) the place the protocol burns the USDD to scale back provide, pushing the worth larger in the direction of $1.
Overcollateralization of backing belongings
Furthermore, Solar additionally identified that the collateralized belongings backing USDD exceed the availability. In idea, this implies token holders can all the time liquidate into {dollars}.
“This offers an excellent counter for the contributors out there… Proper now, the general collateralized share for USDD is at 300%, so it’s very wholesome.”
The tdr.org web site reveals the USDD provide at $747.4 million, with collateral consisting of TRX, BTC, USDT, and USDC totaling $2.3 billion in worth – equating to a ratio of 307%.
Summing up, Solar mentioned as a result of the mint burn mechanism depends on a number of belongings, not simply TRX, along with the backing of an over-collateralized reserve, USDD shouldn’t be like UST.
