Tron Founder Justin Sun Addresses USDD Concerns

Tron founder Justin Sun reassured users that there is no need for worry following the Tron DAO Reserve’s removal of nearly $750 million worth of Bitcoin backing the USDD stablecoin on Wednesday. This algorithmic stablecoin, launched in 2022 as a competitor to Terra’s now-defunct UST token, is currently primarily backed by Tron’s native token, TRX.

Sun explained that USDD was not capital efficient due to its long-term collateralization rate exceeding 300%. This higher rate prompted the TRON DAO Reserve, which oversees USDD’s collateral, to withdraw around 12,000 BTC. Sun described USDD’s mechanism as similar to MakerDAO’s DAI, stating that when a collateral amount surpasses the specified threshold (usually between 120%-150%), any collateral holder can withdraw funds without requiring approval.

This strategic shift has resurfaced long-standing concerns regarding the decentralized nature of USDD and Sun’s influence over it. While USDD is intended to be managed by a DAO, very few decisions have been subjected to community voting.

Notably, the announcement about USDD’s collateral came from Sun’s personal account instead of the Tron DAO Reserve. Up to this point, DAO members have only voted on one matter: whether to utilize burned TRX tokens in May 2023.

Bluechip, known as the “Moody’s of stablecoins,” previously gave USDD the lowest stability ranking, citing its heavy reliance on TRX and lack of transparency. They criticized USDD for lacking a governance system, risking holders’ protections, putting them at the mercy of the Tron DAO Reserve.

Currently, there are about $744 million USDD tokens in circulation, making it the seventh-largest stablecoin by market cap. Its reserves comprise $1.7 billion worth of TRX and USDT, with a collateralization ratio exceeding 230%. However, Bluechip estimated USDD’s effective collateralization at just 53% because the Justin Sun-backed Huobi exchange reportedly controls the address holding USDD’s former Bitcoin reserves. Additionally, most reserves were stored in a multi-signature wallet instead of the USDD smart contract, raising concerns about the assets’ accessibility and movement.

TRX holds the position of the tenth-largest cryptocurrency, with a market cap exceeding $13 billion. In a 2022 FAQ, USDD’s DAO suggested that TRX price fluctuations do not significantly impact USDD’s price stability, encouraging holders to stay rational amidst market uncertainties.

Tron representatives have yet to respond to comments on these matters.