Trons USDD Keeps Losing Peg. What is happening?

• USDD Once Again Losing Peg
• USDD . Collateral
• What does on-chain data indicate?
• The move to buy USDD from Justin Sun
• Collateral figures for USDD
• Epilogue

USDD Once Again Losing Peg

Tron's algorithmically stable coin called Decentralized USD (USDD) has slipped further from par with the US dollar earlier today.

USDD dipped slightly below $0.97 earlier today before recovering to around $0.98. This marks the second time the stablecoin has slipped from the US dollar rate since it was first established earlier this year. In June, the stablecoin fell to US$0.96 before returning to its expected value.

The USDD price drop occurred because stablecoin liquidity has been reduced on Curve – an Ethereum-based decentralized platform where traders can trade USDD against three other stablecoins in a liquidity pool. Currently, more than 80% of the total funds in the liquidity pool are held solely in USDD, showing that traders are favoring other stablecoins: USDT, USDC, and DAI.

USDD . Collateral

Acting as a crypto-backed decentralized stablecoin, USDD is also maintained in value with TRX tokens and other collateral to maintain its value. Although the main collateral of the stablecoin is Tron, the Tron DAO Reserve also maintains additional collateral of Bitcoin and USDC.

Tron DAO Reserve claims the USDD stablecoin is up to 200% collateralized, meaning that for each stablecoin it claims to hold $2 worth of collateral. The project's official website claims that USDD has a market capitalization of over $725 million, backed by over $1.46 billion in collateral reserves.

What does on-chain data indicate?

The move to buy USDD from Justin Sun

As the stablecoin lost its fixed value in USD, Tron founder Justin Sun said on Twitter that he bought over 1 million USDD, helping to preserve the fixed value. Sun shared a transaction showing him swapping USD Coin (USDC) issued by Circle into USDD, via 1inch, a popular decentralized exchange aggregator on Ethereum. 

True to his statement, about 18 hours ago, Justin Sun wallet address purchased more than 1 million USDD. This move is the first by the CEO of Tron in the context of the USDD depeg. Even so, this effort by Justin Sun does not seem to be enough for USDD to regain the 1 USD peg level. The price of USDD is still hovering around $0.98 at the time of writing (December 13, 2022).

Collateral figures for USDD

On the usdd.io homepage, we can see the total supply for USDD is $725 million and total collateral is $1.46 billion.

Mortgage rate is 201.37%. This is not a bad number. But let's dive deep into the analysis to see some anomalies in the data this site provides.

We can check the collateral details for USDD and can see that more than 99% of TRX tokens are not available. According to data from Tronscan.org, 99% of TRX tokens are being staked. This raises thoughts about the lack of liquidity of collateral for USDD.

Not only that, with USDC as collateral, data from tronscan.org also shows us that this amount of USDC is purely jUSDC. This means that the amount of USDC in the collateral provided by usdd.io has been lent in the JustLend protocol.

Epilogue

The above data shows the risks of USDD instability in terms of liquidity. In part, we see the lack of transparency evidence that the Justin Sun team gives. For investors holding USDD, keep a close eye on the actions of Justin Sun and the team of this algorithmic Stablecoin. Besides, you can transfer some of your assets to other stablecoins to keep your portfolio safe. 

Note: The above analysis is for reference only, not investment advice.

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