Evening
So, Tron's algorithmic stable coin USDD has deviated from the peg and with more than 56 hours passed haven't been able to regain the peg yet. As of now USDD has spliced down to $0.964 below the $1 peg.
Stable coins deviate from the peg but they usually regain their peg as their peg maintaining mechanism kicks in by providing profit making arbitrating opportunities. Tron's, USDD is an algorithmic stable coin and it maintains its peg by mint and burn mechanism of sister currency TRX, just like the late Terra's UST.
The prolonged de-pegging came amidst the market crash with large numbers of short sellers targeting TRX on Binance. Tron's founder claimed the Tron DAO will deploy $2 Billion to fight this and within 24hrs a short squeeze is coming. Short squeeze happens when traders are forced to close their shorts due to rise in token price. But after 56hrs since USDD have lost the peg, so far no such short squeeze happened.
TRX has already lost more than 35% of its value since the de-pegging happened and as of now is trading at $0.0504 as per data by CoinMarketCap.
Following Terra's USDT collapse, Tron decided to over-collateralize its USDD with Bitcoin, USDT, and USDC reserves by 130%, this is more than 120% collateral of DAI. And in case of heavy de-pegging of USDD, the reserves would kick in helping it regain the peg.
The same de-pegging happened to Terra's UST with de-pegging happening amidst the heavy market bears sending the whole ecosystem in a death spiral. Luna Guard Foundation desperately deployed its Bitcoin reserves but of no use.
Tron's USDD following the same tokenomics as Terra UST is also susceptible to heavy de-pegging as extreme market conditions prevail. But since market cap of USDD is still around $700 million which is way lower the the UST peak cap of $16 billion, so helping USDD to regain peg by deploying DAO reserves might not be as difficult as it proved with UST.
But as USDD market cap continues rising, like Tron is trying to do by offering high stacking APRs on some of its dapp, the whole house of cards becomes more and more vulnerable to uncontrolled collapse. The bigger the house of cards is the harder it falls, just like what UST did.
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Like any other product from the JS family, the USDD is the copycat of another one... I have no idea why he decided to copy UST that failed and I have no idea how this could be different, but OK...
I just know that I will not get even close to it... lol...
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I think many of us share that sentiment. And quite a few of those are secretly laughing 😆. In fact, I'd pay money to see the weasel's face right now 🤣
tbh, I couldn't care less for things that are happening around Tron, but I don't like to see good people lured into that mess and lose money...
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Me too. I hate Sun and shit chain he have created.
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True. There's always a bunch of people who suffer because of it.
It's always a shitty thing when something like this happens.
So, algorithmic stable coins are failing. How this may affect our beloved HBD?
Thanks for the great information. It is crazy out there at the moment. Thanks for sharing.