For a stablecoin launched amid the fallout of the Terra UST collapse last spring, Tron’s USDD is faring remarkably well.
The success of Tron’s over-collateralized, decentralized stablecoin has helped the smart contract blockchain to double its market share. Tron has jumped from seventh to third place behind market-leaders Ethereum and BSC in total value locked (TVL), with the TVL across Tron’s various apps now standing at $5.2 billion.
Speaking to Decrypt from his base in Singapore, Justin Sun emphasized the importance of maintaining investor confidence in stablecoins through transparent management of funds.
Tron’s plans for USDD also include a compelling use case as legal tender in the Caribbean, and a prominent place on the popular Huobi cryptocurrency exchange, where Sun is now an advisor.
A decentralized, overcollateralized stablecoin
The Tron DAO, which manages the ecosystem since Sun resigned as CEO in December 2021, changed USDD’s operating model in the aftermath of Terra’s collapse.
According to Tron, USDD is now unique in being guided by the first real crypto reserve for the blockchain industry, the Tron DAO Reserve (TDR), with real-time disclosure of the reserve assets backing the stablecoin. These include Bitcoin, Tron’s token TRX, and popular stablecoins USDT and USDC.
USDD is currently over-collateralized with a collateral ratio of 292.8%, according to data from the TRON DAO Reserve, which maintains the stablecoin’s equilibrium. It means that the reserve has enough on hand to buoy USDD in the event of a selloff. TDR’s partners also include big names such as market maker Wintermute, Multichain, and FalconX.
In the six months since it launched, USDD has become the seventh-most-popular stablecoin, and has a market cap of $725 million, but it’s still some way off market leader Tether’s (USDT) $18 billion.
As a decentralized stablecoin, USDD differs from stablecoins such as USDT—which is fiat-based, meaning that funds can be converted to fiat. In contrast, “USDD only relies on cryptocurrency and other, centralized, stablecoins,” says Sun.
“The only reason we invented USDD is because of centralization,” Sun tells Decrypt. “You can basically just use USDD with crypto addresses in a decentralized way. So I believe this is the biggest advantage we have.”
"USDD only relies on cryptocurrency and other, centralized, stablecoins."
And Sun indicates that plans for USDD are still unfurling. His appointment as a member of the global advisory board of Huobi gives him sway over the exchange’s growth and development, with the prospect of USDD being introduced into more trading pairs, thus strengthening the liquidity of the token and building up demand.
In summary, USDD is a sum of lessons learned from Terra about the importance of keeping stablecoins safe from centralized control; reassuring users through overcollateralization, and focusing on the use case, says Sun.
A compelling use case
According to Sun, having a strong use case is a hurdle that many stablecoins fail to breach. Most people use stablecoins “to deposit into a pool with 20% API. I think we can use some of the incentives to encourage the growth of the stablecoin,” he says.
Courtesy of a collaboration between Tron and the government of Dominica, USDD will have a compelling use case as legal tender on the Caribbean island, Sun tells Decrypt.
The collaboration not only supports USDD but also other stablecoins and tokens. It will provide the island with blockchain infrastructure, a smart contract platform, and an NFT exchange, as well as Web3 tools—including decentralized file transfer platform, BitTorrent (integrated with the Tron ecosystem in July 2018.)
The infrastructure will include a payment platform, ensuring that cryptocurrencies can be used as a means of exchange, says Sun. El Salvador making Bitcoin legal tender in 2021 was a big achievement, but it’s not so easy to pay people because the price fluctuates too much, says Sun.
Sun was recently made Permanent Representative of Grenada to the World Trade Organization and is now a citizen of the Caribbean island. This smooths the way for talks with other regional governments to introduce USDD as legal tender.
While no longer Tron's CEO, it’s clear that he is still passionate about Tron’s prominent place in the emerging decentralized internet, and USDD is at the heart of this strategy.
"I believe as long as we follow the rules with overcollateralization, decentralization, and a real use case, in the world, we can really grow the stablecoin to the next level," said Sun.
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