Trailing UST’s Path: Tron’s Algorithmic Stablecoin USDD Loses Peg to the Dollar

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Tron’s algorithmic stablecoin, Decentralized USD (USDD) is currently crumbling under the weight of the bearish crypto market as it has lost its supposed $1 peg to the United States Dollar. 

At the time of writing, the USDD is changing hands at $0.9809, down 0.66% in the past 24 hours according to data from CoinMarketCap. Earlier today, the stablecoin slumped as low as $0.9764 as investors re-evaluate their stance with respect to the embrace of the algorithmic stablecoin. 

The USDD has the same operational model as the UST stablecoin, the algorithmic stablecoin of the Terra blockchain which collapsed last month. Whenever the price of the USDD slips below $1, the system automatically allows users to burn 1 USDD to receive $1 worth of Tron (TRX) tokens. The reverse holds true when the price climbs above the $1 price peg.

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The price stabilizing model has been proving to be adequate in preserving the USDD from a massive fall when compared to its counterpart. At a market capitalization of $700 million, the TronDAO, the new offshoot tasked with building reserve and managing the USDD has been injecting liquidity in a bid to help preserve the peg of the stablecoin.

The TronDAO shared with a Twitter update that it has received an allocation of $700 million to help secure the peg of USDD to the dollar. Following this latest fund injection, TronDAO said the collateralization level of the USDD is now close to 300%.

Would Tron’s USDD Trail Terra’s UST?

By a lot of metrics, Terra’s UST which undoubtedly comes off as a major model for Tron’s USDD is a complete failure, wiping as much as $40 billion from investors’ wealth overnight. Despite the efforts to revive the protocol with the launch of Terra 2, the hopes that UST will maintain its peg back have been completely dashed.

The Luna Foundation Guard (LFG) despite its deep reserve base revealed that it almost depleted its reserve in an attempt to save the UST from collapse. With the TronDAO now also working hard to ensure it preserves the peg of the USDD, many wonder if the USDD will stand the test of time, coupled with the highly unfavorable market condition.

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