Could another algorithmic stablecoin be running into choppy waters? And was the Terra debacle just the tip of the iceberg? That is the question on the mind of market watchers as Tron’s newly launched stablecoin, the USDD, runs into trouble only a few months after its launch, having slipped to nearly $0.91 early on Monday. Currently, it is trading for $0.98.
Another Algorithmic Stablecoin Wobbles And De-Pegs
Tron’s USDD stablecoin lost its peg to the US Dollar on Monday, falling as low as 91 cents. The de-pegging happened as crypto markets fell off a cliff, with investors spooked and concerned by significantly higher inflation, tightening financial markets and conditions, and a potential recession looming on the horizon. The crypto market, already jittery, was further rocked by the news that lending platform Celsius was suspending all withdrawals, adding to the market’s negative sentiment.
Tron founder Justin Sun tweeted that the funding rate on Binance for shorting Tron’s native TRX token was at a whopping negative 500%. This suggested that investors are looking at getting into the trade.
“Funding rate of shorting #TRX on @binance is negative 500% APR. @trondaoreserve will deploy 2 billion USD to fight them. I don’t think they can last for even 24 hours. Short squeeze is coming.”
Tron Actively Working To Prop Up USDD
With this latest episode adding to an already jittery market, Justin Sun shed light on how the Tron DAO, which manages the USDD and USDD reserves, is actively purchasing crypto.
“We will add reserve into [the] public address once [the] market is stable. Furthermore, #USDD return rate will refresh every day.”
The Tron DAO and Sun also announced a purchase of $650 million USDC in the past hour, bringing the total to $2.5 billion.
“To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve have increased 650,000,000 #USDC supply on #TRON. Currently, USDC supply on TRON has reached $2.5 billion.”
An Eerie Reminder
Despite the USDD slipping from its dollar peg, the stablecoin remains overcollateralized by nearly 278%, according to data from the USDD homepage. The algorithmic stablecoin is collateralized by reserves of Bitcoin (BTC), Tether (USDT), Tron (TRX), and USD Coin (USDC). Sun had talked about the over-collateralization of the USDD, stating,
“We want to have USDD to be overcollateralized, which I think will make market participants more comfortable about using us in the future,”
However, Terra users must be getting a sense of deja vu watching the developments unfold, with the talk about a $10 billion reserve and the confidence of the leadership reminiscent of Terra before its spectacular downfall. Like Sun, Do Kwon had also announced a $10 billion BTC purchase, which eventually failed to materialize. However, Tron is a much more solid project and has proved that it can emulate just about anything that other projects in the crypto space are doing.
Overall Crypto Markets Jittery
The crypto markets, already jittery and bearish after Terra’s spectacular downfall, were further rocked by a huge sell-off that drove BTC and ETH to 18-month lows. The weekend sell-off forced crypto lender Celsius to suspend withdrawals as it looked to prevent a run on deposits. The developments point to a worrying liquidity crisis brewing in the crypto space, further exasperated by a worsening economic crisis the world over. Amidst persistently high inflation, central banks have hiked interest rates, removing liquidity from the financial system. Currently, the USDD is trading at around $0.98.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.