Tron to Launch an Algorithmic Stablecoin Backed by $10 Billion in Crypto

Tron CEO Justin Sun has announced his plan to launch a decentralised algorithmic stablecoin known as Decentralised USD (USDD) on the Tron blockchain, scheduled for May 5.

Unlike traditional stablecoins such as Tether (USDT), which already runs on Tron, USDD will supposedly be “fully decentralised” – it won’t be backed by centralised assets held in traditional financial institutions such as banks, but will depend on algorithms to keep its peg to the US dollar.

Tron’s ‘Self-Imposed Revolution’ 

Sun characterised the plan as a “self-imposed revolution”, going on to describe USDD as “a fully decentralised stablecoin underpinned by mathematics and algorithms, bringing the development of stablecoins to the next level”.

He explained how he envisions USDD maintaining its peg to the US dollar even in the face of extreme market conditions:

USDD will be pegged to the underlying asset, TRX, and issued in a decentralised manner. When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralised system and receive 1 USDD. Regardless of market volatility, the USDD protocol will keep USDD stable at 1:1 against the US dollar via proper algorithms in a decentralised manner.

Justin Sun, CEO, Tron

Tron DAO to Establish US$10 Billion Reserve, Offer 30% Interest Rate

In a related announcement, Sun explained that Tron DAO, the decentralised autonomous organisation created to manage USDD, will establish the Tron DAO Reserve, which aims to raise US$10 billion from unnamed “prominent blockchain industry players”. This plan closely mirrors a recent announcement from Terra founder Do Kwon, who outlined his intention to acquire US$10 billion in BTC to act as a reserve for Terra’s algorithmic stablecoin, UST.

Sun said that the purpose of the Tron DAO Reserve would be to “safeguard the overall blockchain industry and crypto market, prevent panic trading caused by financial crises, and mitigate severe and long-term economic downturns”.

Sun added that Tron DAO Reserve would offer a “basic risk-free” interest rate of 30 percent, which surprised some Twitter users who considered it unrealistically high and unsustainable:

1/3 @trondao announced its algo-stable #USDD, backed by $TRX and $10 Billions. The cripto world continues to innovate, but the interest paid on the #UST already seems unsustainable to me. The 30% return on the $USDD is really a ponzi scheme!

— John Cooper (@John_Cooper_fi) April 21, 2022

Announcement Sparks Gains and Scepticism

According to CoinGecko, TRON’s native token TRX gained about 18 percent following the announcement, hitting a high of US$0.074. TRX has since lost about half those gains and sits at US$0.067 at the time of writing.

While the announcement sparked investor interest, not everyone was convinced. Several Twitter users pointed out that the Tron blockchain itself isn’t exactly leading the way on decentralisation. Others pointed out that the plan resembled a poor man’s version of Terra’s UST being run by a guy with a less than stellar reputation:

Holy Crap; #tron got so desperate they're copying work from the smart kid @stablekwon and trying to pass it off as their own. $luna $ust pic.twitter.com/ET55E5VZlt

— CJ 🌖 (@tweeterazzis) April 21, 2022

Terra’s UST is the most popular algorithmic stablecoin in current circulation: UST flipped Binance USD to become the third-largest stablecoin by market cap earlier this week.