During this very difficult day for the crypto markets, USDD is in danger of losing its peg with the dollar.
Historic low for USDD
USDD is the algorithmic stablecoin of the Tron ecosystem, pegged to the value of the US dollar. Today its value hit an all-time low at $0.977.
This is 2.3% lower than the reference value, and this in theory could even be enough for it to lose its peg to the dollar.
However, an hour later it was already back above $0.99, although it still doesn’t seem to be able to return to exactly $1.
Surely being back above $0.99 in such a short time might seem like a good sign, but after what happened last month to UST, there is some concern.
UST was also an algorithmic stablecoin pegged to the dollar, but it literally imploded because it did not have enough reserves. These consisted largely of tokens of the Luna cryptocurrency, which literally imploded, and Bitcoin.
Instead, Tron DAO decided to add 700 million USDC, another non-algorithmic but fully-collateralized stablecoin, to its USDD reserves, and this move momentarily calmed the markets.
— Watcher.Guru (@WatcherGuru) June 13, 2022
USDD capitalizes just a little over $700 million, so with this move it is now almost fully backed by reserves.
The collapse of UST
It is worth noting that UST‘s collapse also occurred in two moments. Following the first drop there was a recovery, though not a total one, while it was the second sharp drop that triggered the collapse.
However, now that there is $700 million in USDC to support USDD, it would seem that an eventual collapse has been averted. It remains to be seen if there is any news on this in the coming hours or days.
USDC is a stablecoin issued by Circle, in partnership with Coinbase, and backed by reserves for 100% of its circulating value. In addition, Circle is a registered and regulated company in the US, and thus generally considered trustworthy.
The move by Tron DAO seems to rather explicitly suggest that algorithmic stablecoins are indeed high risk. Nonetheless, there is one of them, DAI, which seems to be holding up very well even in 2022. It is the oldest of the major ones and is based on Ethereum. Its strength lies in being over-collateralized.
At this point, to avoid a meltdown USDD could continue to remain almost fully collateralized in USDC for a while, and perhaps try to become an algorithmic stablecoin again when the dust settles.