Tron Founder Justin Sun has learned from LUNA/UST model’s mistake

Justin Sun, the founder of the renowned decentralized, open-source blockchain-based operating system, Tron, is the latest big name to comment on the UST/LUNA disaster. Sun penned a blog post that mainly notes the lessons he learned from the recent collapse. 

He believes that over-collateralization is the key to maintaining any stablecoin peg and a high yield marketed as an incentive is unsustainable in the long term.

The matter is important as the founder of the company has the responsibility of not disappointing the crypto community with its recent announcement about the launch of the company’s own stablecoin USDD. Notably, USDD follows a similar algorithmic mechanism as TerraUSD (UST) did, burning $1 of Tron (TRX) in exchange for the right to mint 1 USDD. The recent collapse has raised questions about USDD’s plans and model. 

Sun considers the approach risky as UST was largely backed by LUNA with less than 15% collateralized by Bitcoin. He writes:

“The Reserve consisted of just $3b of BTC at its peak, hardly enough to collateralize the nearly 19b+ UST supply. During the bank run over the last two weeks, LFG’s collateral barely made a dent in the overwhelming UST sell pressure. “

USDD reserve has good quality assets, including TRON

Learning from Do Kwon’s mistake, TRON DAO Reserve holds a combination of high-quality and less volatile assets, including USDT, USDC, BTC, and TRON, providing solid backing to USDD.

TRON DAO Reserve will reveal the type and amount of collateralized assets in order to demonstrate its great transparency. The Reserve now owns roughly $295 million in USDT, $82 million in BTC, and $181 million in TRX. The founder specifically mentioned that its network had “the largest supply of fiat-backed stablecoins (USDT) issued on-chain,” which is a significant advantage over Terra’s.

Sun stated that the Reserve’s roadmap for the newly launched stablecoin will focus on liquidity, for the time being, ensuring that more USDD trading pairs are available on decentralized exchanges while developing ties with centralized exchanges.