Tron ‘overcollateralizes’ stablecoin USDD, wants to avoid UST-like collapse

The collapse of the Terra USD (UST) stablecoin from the Terra network has raised concerns for the Tron network which launched its algorithmic stablecoin – inspired by UST – on May 5th. The platform led by Justin Sun has announced that it is “supercollateralizing” USDD currency reserves. In other words, the project is significantly increasing the amount of capital supporting the stable digital currency.

Tron works on collateralization of its stablecoin

The goal is to prevent USDD from failing like UST did. Early last month, the stablecoin lost its 1:1 parity with the US dollar, causing the entire Earth ecosystem to collapse.

The LUNA cryptocurrency, which supported UST, went to zero and the network had to go through a hard fork to try to recover. In addition, the new chain no longer has the UST that became TerraUSD Classic (USTC).

130% reserve for USDD

According to Justin Sun, TRON has created and will maintain a reserve at a minimum of 130% of the total USDD value. The reserve will be made up of cryptocurrencies and other stablecoins.

According to a press release from the network, TRON will start publishing real-time updates of this reservation guarantee on the TRON DAO Reserve website from June 5th.

At the moment, according to a TRON spokesperson, the reserve contains 10,500 Bitcoin (about $330 million); 240 million USDT; and 1.9 billion TRX (token on TRON), plus 8.29 billion TRX in a burn contract.

“We want to upgrade USDD to a hybrid model,” Sun said. “So, on the one hand, we have an algorithmic stablecoin – an algorithm for making the stablecoin stable. And on the other hand, we have TRON DAO Reserve.”

According to the website, TRON DAO Reserve aims to protect the overall blockchain industry, prevent panic trading caused by financial crises, and mitigate severe economic downturns.

The reserve oversees traditional TRON-based stablecoins as well as manages USDD, ensuring its price stability with reserves.

Diversified reserve

As TRON reported, the USDD stablecoin is designed to incentivize arbitrageurs to keep its price pegged to the US dollar through trading between TRX and USDD.

By following the same strategy as UST – and with the failure of the stablecoin – Sun wants to ensure that the stablecoin will be sufficiently supported.

“The reserve fund we are using now is highly diversified. It includes BTC and all different types of stablecoin. USDC [stablecoin da Circle] will be part of our reservation. But it will only be a small part of our reserve,” Sun said.