- On Sunday, USDD, an allegedly “algorithmic” stablecoin that is supposed to always be worth $1, fell as low as 93 cents.
- Fears have been raised that USDD would see the same fate as terraUSD, a comparable token that crashed in May.
- But despite worries that the Terra saga may repeat itself, scientists agree this is unlikely to happen.
The most dependable assets in the cryptocurrency world, stablecoins, have changed to become volatile. The concern around stablecoins, particularly algorithmic stablecoins, has surfaced over the past several months. Justin Sun’s USDD flourished despite Terra’s failure and its stablecoin UST [now USTC]. The asset, however, was perceived to be losing its $1 peg.
After Tron’s USDD fell below $1, the crypto community was made aware. Sun’s stablecoin has experienced some significant volatility over the past several days. While USDD held onto $0.97 for a while, it was later found to be declining. The asset dropped earlier today, going from a high of $0.9758 to a low of $0.9673.
The USDD had a considerable decline, as shown in the figure above. It was also attempting to gain support at $0.974, though. Stablecoin for Tron was selling at $0.9756 at the time of publication, up 0.18 percent.
The USDD terrified the neighborhood by losing its peg before. The asset had been de-pegging gradually since November, when the FTX was in the midst of its collapse. The asset’s lowest price ever was $0.9255 on June 19.
However, USDD always managed to return to $1, loyal to its character as an “over-collateralized stablecoin.”
Furthermore, 86 percent of the liquidity pool on Curve’s decentralized finance protocol was in USD. DAI contributed 6.658 percent, USDC 5.80 percent, and USDT 5.59 percent, among the others.
Did This Trigger A Tron [TRX] Selling Frenzy?
Justin Sun’s assets were all in turmoil. TRX was observed falling shortly after USDD made noise about its de-pegging. The asset’s price was $0.05233 at the time of publication, down 4.52 percent on the day. The alternative currency fell from a high of $0.05475 to a low of $0.05211.
Many people hypothesized that this decline might have resulted from USDD’s depegging.
It should be mentioned, though, that the market as a whole was falling. As part of the ongoing carnage, bleeding was visible from almost every asset.
What is USDD?
Early in May, just before UST started to decline below $1, USDD was introduced. Despite more selling, it has repeatedly traded below the planned dollar peg over the previous week.
To maintain a one-to-one peg to the dollar, USDD uses a sophisticated algorithm with a related token called Tron instead of holding large amounts of cash and other assets that resemble currency.
If that seems familiar, it’s because Terra’s UST functioned in a manner very similar to that described above, generating and destroying units of UST and a sister coin called Luna to avoid the requirement of having reserves to back the stablecoin.
Another similarity between USDD and UST is that both have amassed substantial hoards of additional digital tokens to support price growth in the event of investor exodus. To support its stablecoin, Terra spent billions of dollars on cryptocurrency purchases, but the investment was ultimately in vain.
According to Monsur Hussain, senior director of financial institutions at Fitch Ratings, USDD’s usage of cryptocurrencies as reserves exposes it to “identical vulnerabilities as UST.”
Additionally, on USDD deposits, investors can receive extraordinarily high-interest rates of up to 39%. Anchor, a cryptocurrency lending platform, advertised similar rates of up to 20% on UST holdings; however, many investors now claim this rate was unsustainable.