Game is over for UST yet another algorithmic stablecoin, USDD, has entered the crypto ecosystem

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(Edited)

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The Luna-UST saga ends but it has inspired Tron-USDD to fill up that vacuum

Not very long ago, Terra Luna had its grand days, remember as we got news after news that Terra’s UST was the 3rd largest decentralised stablecoin in the crypto space after centralised stablecoin USDT and USDC.

Our outspoken Terra CEO Do Kwon, kept making news after news and all of us who were following the space can recall, the grand news of Do Kwon buying so much Bitcoin that he was the 3rd largest Bitcoin holder, all claimed to be done to build a 10 billion $ reserve in Bitcoin to protect UST’s peg during crisis situation.

All that news created a big buzz in the crypto space about UST. During, this time, no one seemed to have dreamt about the possibility of UST and Luna collapsing, like suiciding tragic pairs of lovers sinking hand in hand together into the death spiral. Instead, what happened was investors like me felt very bullish about Luna because of UST’s huge adoption, and Tron protocol’s Justin Sun announced his plans of launching USDD algorithmic stablecoin.

Yeah, Tron’s USDD that was launched in May, few weeks before Luna-UST’s death spiral works very similarly to the now dead algorithmic stablecoin UST.

A feeling of Deja vu for Luna - UST rekt holders with algorithmic stablecoin USDD

usdd1
USDD's twitter banner

Yes… When USDD’s peg is less than 1$, arbitrage traders burn the discounted USDD for 1$ worth of Tron, and sell that Tron in the market, and pocket profit. When USDD’s peg is more than 1$, then its supply is increased where more USDD is minted, as arbitrage traders swap 1$ worth of Tron for USDD, pocketing a small profit.

In other words, the basic mechanism of USDD maintaining its 1$ peg, is very similar to how UST maintained its peg being burned and minted to maintain its peg balance with Luna.

Yes, yes. This whole thing is scary for Luna-UST holders, but let’s go further leaving that collapsed past investment story behind us, but deja vu it is again, can’t help recalling.

Also, Tron Dao has plans of establishing a 10 billion $ reserve fund like Luna had for protecting USDD’s stability during a crisis.

USDD yields in Tron Defi has lead to exponential increase in TVL in the Tron ecosystem

tron_tvl
DefiLama
Suddenly after launch of USDD, from May Tron's TVL has increased exponentially!!

Anyway, what's interesting is that after Tron has introduced this algorithmic stablecoin, USDD, the Total Value locked(TVL) in Defi protocols in Tron, has experienced a massive uptick. Now, Tron is the 3rd largest Blockchain after Ethereum and Binance Smart Chain in term of TVL.

Tron’s most popular DEFI lending and borrowing platform JustLend experienced a massive increase in users locking up their assets here after May 14th.

justlendtvl
Data from DefiLama

Sun.io, Tron’s stable coin swapping, yield farming platform, has also experienced a massive increase in TVL since May 24th.

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Data from DefiLama

APY yields for USDD deposits in popular Tron DEFI protocols

Let’s check how much APY yield USDD holders get in these protocols, maybe this is the reason for this sudden rise in TVL in Tron protocols.

Just Lend

In Just Lend, base supply APY for supplying USDD is 3.79%, while borrow APY remains higher at 4.99%. Here, APY is distributed for both suppliers and borrowers in USDD currency.

usdd_apy
JustLend
Please note that the interest rate is changed periodically by Just Lend team evaluating the supply and borrow of USDD data

Then there is the Supply Mining APY, that’s distributed in JST and USDD currency, amounting to 14.11%.

Sun
In Sun, the USDD-TRX LP pool seems to give high APYs in USDD of 50%!! Shrugs.

usdd_trx
Sun USDD-TRX LP

The USDD- USDT LP pool gives USDD APY of 14%.

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Sun USDD-USDT LP

Overall, the APY yields for locking up USDD in these two Tron DEFI protocols seems to be decent and this is likely the reason why Tron ecosystem has experienced such a massive uptick in TVL.

The big question - Is USDD a safe decentralised stablecoin to invest in!!

However, the question is will USDD be sustainable, because algorithmic stablecoins are scary after UST’s death spiral collapse?.

Well, I don’t know.

I have glanced at USDD whitepaper, and I see that Super Representatives of Tron will have the load of stabilizing the USDD peg, they will be compensated with fees from swaps of arbitrage trades between USDD and Tron.

You can read the white paper and learn about USDD more indepthly, which I plan to do, not to invest, but understand mechanics of USDD coin so can understand the risks, right now, I can confidently say I am not familiar with the USDD mechanics, to comment on it.

USDD’s white paper -
https://usdd.io/USDD-en.pdf

USDD holders must know how to make a immediate exit, incase USDD faces depeg issues!!

I just have advise for USDD investors and its hindsight out of my experience with UST collapse. Please know about the mechanisms to convert your USDD to normal stable coin when required. For UST, there was Curve + 3 pool, where one can go and swap UST to USDC or USDT in Curve Finance’s protocol.

For USDD, there is the USDD-USDT LP pool in Sun where you can swap USDD to USDT when required. So, incase USDD starts losing peg, you can be out of it, swapping it quickly for another stablecoin.

Unfortunately USDD- USDC LP pool is not there, because USDC is the most trusted centralised stablecoin that has proof that its backed 1:1 with reserves supporting its peg to USD. Tether, is not a tall transparent with its audits so public suspects that it may not be backed 1:1 by needed reserves to maintain its 1 $ peg.

Anyway, its very likely USDD - USDC, or 3 Pool kind of pool will launch soon in Sun.

However, recently USDD is supported in platform BTSE, where trading and swap pairs for USDD-USDC is there!! I saw this update in USDD’s twitter channel!!

btse
Twitter Tweet

It's a must to be familiar with the available exit routes from USDD to another stablecoin in times of a depegging crisis!!

Tron with USDD has a opportunity to create a successful algorithmic stablecoin

However, I find it strange that after UST’s collapse, another algorithmic stablecoin USDD gains popularity due to decent APY rewards.

This is an opportunity for Tron to create that ultimate algorithmic stablecoin that proves to successful in maintaining its 1$ Peg!!

Tron is super popular for the USDT in Tron Blockchain is well used, as USDT ERC -20 token transfers are costly.

tronusdt
Tron Blockchain is well used for its USDT TRC20 tokens transfers!!

USDT Tron tokens have found good support in many crypto exchanges too, making it a well adopted network for USDT Tron token transfers.

Thankyou for reading!!



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