After the collapse of the so-called stablecoin called terraUSD, cryptocurrencies have been under immense pressure.
Umit Turhan Coskun | Nurphoto via Getty Images
The controversial stablecoin launched just before the collapse of a similar token called terraUSD USD..
USDD, the so-called “algorithm” stablecoin, meant it was always worth $ 1 and plunged to 93 cents on Sunday. The creator of the coin is Bitcoin Other digital tokens worth nearly $ 2 billion to provide a buffer for investors to flee all at once.
The situation led to fear that USDD might suffer Same fate as terraUSDAlso UST, A destroyed so-called stablecoin that formed part of an experiment called Terra. UST meltdown is a wider trigger Cryptocurrency sold outHas been getting worse in the last few weeks Increasing liquidity crisis In the market.
TronDAO Reserve, which oversees and manages Stablecoin, said the price of USDD is expected to fluctuate to some extent given the “distributed” nature of USDD.
The organization tweeted last week that “a certain percentage of volatility is inevitable.” “Currently, the market volatility rate is within ± 3%, which is acceptable. We will carefully monitor the market and act accordingly.”
USDD was trading at about 97 cents on Wednesday.
Despite concerns about Terrasaga’s repetition, experts say this is unlikely to be the case, as USDD is much smaller in size and has little uptake from crypto investors.
The USDD was launched in early May, a few days before the UST started to fall below $ 1. Over the past week, it has traded below the intended dollar pegs as sales have increased.
Instead of sitting on a pile of cash and other cash-like assets, USDD runs a complex algorithm in combination with related tokens called Tron to maintain a one-to-one peg to the greenback.
If it sounds familiar, it’s Terra’s UST Almost the same wayCreate and destroy a unit of UST and a sister coin called Luna to avoid the need to have a spare to back up Stablecoin.
Another similarity that USDD shares with UST is that it is accumulating significant cash on other digital tokens in order to raise prices in case of a surge in investors.Purchased by Terra Billions of dollars worth of crypto To bring out that stablecoin Eventually proved to be useless..
When USDD uses crypto as a reserve, it is exposed to “UST-like risks,” said Monsour Hussein, senior director of Fitch Ratings’ financial institutions.
“Cryptography is generally price-correlated during times of turmoil,” he added.
USDD also offers investors an unusually high interest rate (up to 39%) on USDD deposits. Anchor, a cryptocurrency lending platform, also advertised a yield of as much as 20% on UST holdings. This is the rate that many investors say is currently unsustainable.
The coin was created by Justin Sun, a candid crypto entrepreneur behind Tron, a blockchain trying to compete with Ethereum. Like Terra’s founder, Do Kwon, Sun uses it a lot. twitter Promote his project and challenge critics.
Chinese-born businessmen have been involved in many controversial and promotional stunts in the past. In 2019 he Paid $ 4.6 million to have lunch Suddenly canceled with Berkshire Hathaway CEO Warren Buffett.Finally lunch Made in 2020..
However, upon closer inspection, it is clear that there are some notable differences between USDD and UST.
For one thing, USDD is far from the size of Terra. Terra’s UST and luna tokens Total value of $ 60 billion At their height. Therefore, analysts say it is unlikely that the same effect will be achieved if it collapses.
“USDD isn’t heavy enough to cause the same destruction consequences that UST did,” said Dustin Tiander, a research analyst at crypto data company Messari.
He added that the use of USDD is not as widespread as it was before the disappearance of UST.
According to public blockchain records, about 10,000 accounts hold tokens on the Tron network, while over 100 accounts hold tokens on Ethereum.
If the USDD collapses, “there will be no as much transmission or fear as when the UST / LUNA crashed,” Hussein said.
And unlike UST, Partially secured by cryptography, USDD aims for over-collateral. That is, the asset always exceeds the number of tokens in circulation.
The Tron DAO Reserve states that its reserves include over $ 1.9 billion in Bitcoin and other tokens, including Stablecoin USDC and tethers. USDD has a supply of approximately $ 700 million. According to Teander, it reduces the possibility of Terra-style collapse.