Tron Stablecoin Over-Collaterises 200% to Prevent UST-like Collapse

June 07, 2022, 10:30 AM AEST - 3 weeks ago

TRON has announced that its recently launched algorithmic stablecoin, Decentralised USD (USDD), will be over-collateralised by a ratio of at least 130 percent in an effort to prevent a UST-style depegging event and to inspire confidence in the new coin.

When USDD launched on May 5, just before the Terra collapse, it was structured like most other algorithmic stablecoins with little in the way of collateral backing its value. Since then, TRON has prioritised increasing USDD’s collateralisation – according to data on the TRON DAO Reserve website, the ratio at the time of writing was 219.8 percent.

Ratio Among Highest In Crypto

The claimed guaranteed minimum 130 percent collaterisation of USDD touted by TRON makes it perhaps the most highly collateralised stablecoin in all of crypto, outdoing the previous standard bearer, DAI, with its collateralisation ratio of 120 percent.

According to TRON, the TRON DAO Reserve (TDR) currently consists of around US$1.37 billion of what it describes as “highly liquid assets”, including 10,500 Bitcoin (BTC), 240 million Tether (USDT), and 1.9 billion in TRX, TRON’s own coin. Currently there is around US$667 million USDD in circulation.

Move Intended to Instill Stability, Confidence

TRON founder Justin Sun says the over-collaterisation of USDD is one of several strategies being used to maintain the coin’s stability and promote market confidence:

Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralised USDD will add more diversified features to underpin its stability. The US$10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralised stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.

Justin Sun, founder, TRON

As seen with the catastrophic collapse of Terra, having collateral as backing is no guarantee that an algorithmic stablecoin won’t suddenly and spectacularly lose its peg. During Terra’s collapse, the Luna Foundation Guard deployed billions in Bitcoin and other assets to restore UST’s peg, to no avail.

Since the launch of USDD, TRON has become the third-largest blockchain for DeFi by total value locked (TVL), soaring to over US$6 billion and promising intrepid users Terra-like annual rates of return of over 20 percent.

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