It’s already a rough weekend for the crypto market, but one stablecoin project is throwing salt in the wound with its price instability. The USDD (USDD-USD) crypto is falling from its $1 value. And given recent events surrounding the stablecoin market, it’s getting investors riled up.
USDD is a very new addition to the Tron (TRX-USD) network. The network announced a looming stablecoin launch in late April, and, after releasing in early May, the USDD was the realization of this announcement. The token is meant to help along Tron’s decentralized finance (DeFi) expansion. And by introducing a native token, Tron can better support its many dApps with new pairings, deeper stablecoin liquidity and more.
When the project launched, it came under a microscope due to its model. See, USDD is an algorithmic stablecoin; where most stablecoins keep their pegs by having underlying assets, algorithmic stablecoins keep their pegs using mathematic formulas which constantly adjust supply to meet demand. The effect is a perfect equilibrium between the two.
However, this equilibrium can oftentimes be thrown off when there are rapid changes in demand. This has been shown especially true in the wake of the TerraUSD collapse. The stablecoin saw a fast change in demand which the protocol couldn’t adjust for quickly enough. A small de-pegging turned into a massive issue as a result, and tanked the coin to worthlessness.
USDD launched just before this fiasco, which led to much worry from investors that it could suffer the same fate. Developers assure that USDD is safer than TerraUSD. In addition to its algorithmic model, Tron is underlying the asset with an “over-collateralization” of reserves. They say that this over-collateralization provides several more safety nets for the project.
USDD Crypto Holders Are Nervous About Risk Mitigation Efforts
USDD crypto developers promise things will be different from previous algorithmic stablecoin failures. But already, the project is hitting its first rough patch. The stablecoin fell from its peg, and while it only dropped by about three cents, investors are shaken by the news.
After a tumultuous weekend of market-wide crypto losses, USDD is starting the week with a dip to 97 cents. The price turmoil comes after a USDD whale swapped one million tokens for Tether (USDT-USD). The transaction seems to be enough to knock the token from its peg.
As of yet, it hasn’t reclaimed $1, but it continues to grow closer. Developers say they’re accumulating $700 million in USD Coin (USDC-USD) in response to the de-pegging. This 700 million USDC is adding to the over-collateralized reserves; as developers point out, this new purchase means USDD reserves underlie USDD at a 3:1 ratio.
But even as it returns to $1, investors are scrutinizing the project. One Twitter user points out that a large whale who capitalized on the TerraUSD collapse is now swapping large amounts of USDD. Another points out that while developers might have nearly triple the reserves necessary to support USDD, only $668 million of these reserves where actively underlying the token. Developers are reportedly yield farming with $140 million of these reserves.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.