We anticipate that by this point, you have a good understanding of USDD and how it functions. Whether it is the best investment option for you is the next logical inquiry at this point.
Overall, it appears that Tron is indeed taking a variety of steps to guarantee that USDD’s value is maintained even under challenging circumstances. It’s a good move in the right direction that the token will now be collateralized by BTC, USDT, and TRX in addition to TRX.
In light of everything, USDD might be worthwhile to research.
To state the obvious, all cryptocurrency investments involve some level of risk, and USDD is no exception. As a result, always conduct your own research and, if necessary, consult a financial expert before investing.
The fundamentals of the USDD stablecoin are quite simple to comprehend, but like with everything in cryptocurrency, the more you learn, the more information there is to digest. Visit the BeInCrypto Telegram group to learn everything you need to know.
What Is USDD Stablecoin?
The USDD stablecoin issued by Tron has recently been often mentioned in cryptocurrency news. Media attention and social media spotlight on that level for a token that is only a month old should have seemed like a major accomplishment. But not for USDD, which is already in a precarious position following the collapse of sister algorithmic stablecoin terraUSD (UST) last month.
Under investigation, Tron is currently in a desperate state to demonstrate that USDD is immune from the flaws that ultimately resulted in the demise of terraUSD. Of course, the ultimate outcome of these efforts will only become apparent with time.
In the meanwhile, this comprehensive guide is a wonderful place to start if you want to learn more about the USDD stablecoin.
An upgrade over conventional stablecoins?
Since 2021, a brand-new stablecoin kind has appeared on the cryptocurrency market. This new class of asset, known as algorithmic stablecoins, employs an entirely new method to keep its peg. USD Digital (USDD), TerraUSD (UST), Frax (FRAX), NeutrinoUSD (USDN), and Magic Internet Money are some instances of algorithmic stablecoins (MIM).
Because these assets produce more coins when the price rises and buy them off the market when the price falls, they are known as algorithmic assets. Depegging is intended to be avoided here by controlling the supply-demand ratio.
These assets are uncollateralized in their most basic form, which is why they are occasionally also referred to as “uncollateralized stablecoins.” However, USDD asserts that it is excessively collateralized (details below).
Given that algorithmic stablecoins are self-sustaining, one may contend that they are a true depiction of decentralised assets. The supply, demand, and target price are all controlled by the algorithm itself, which also handles all other operations.
If you’re interested in learning more about algorithmic stablecoins, BeInCrypto already has a thorough guide outlining their merits and disadvantages as well as other important information.
What is USDD stablecoin?
On May 5, 2022, USD Digital (USDD) made its official debut as a stablecoin on the Ethereum, Tron, and BNB Chain blockchains. It is fixed at a 1:1 ratio to the U.S. dollar, which means that 1 USDD is always expected to be equal to $1. This means that USDD maintains its value at a fixed exchange rate to the U.S. dollar.
USDD doesn’t have a lot of history because it’s just been around for a month. It does, however, have a lot in common with UST, the Terra stablecoin that ruled the roost until its demise as an algorithmic stablecoin. In a little bit, we’ll get into the specifics, such as how USDD functions and its underlying tokenomics, but first, let’s have a look at the people who created the token.
The team behind USDD
In order to duplicate the success of Terra UST, which at one point was the third-largest stablecoin by market size, Tron, a blockchain-based decentralised digital platform, created USDD (lagging only behind USDT and USDC).
Tron is not the new kid on the block, although USDD is. Justin Sun founded Tron in 2017, and its in-house digital currency, Tronix (TRX), is already well-known in the cryptocurrency industry. The network uses blockchain technology and its offshoots to hasten the decentralisation of the internet.
Tron has a significant global user base with more than 90 million accounts as of Q2 2022.
USDD is over-collateralized
Tron pledged to completely back USDD with a balanced mix of stable and erratic assets at the time of its introduction. The USDD will be excessively collateralized with a variety of high-quality, low-volatility assets, according to Justin Sun. He added that the collateral would include currencies like BTC, USDT, and USDC.
Recently, Tron assured that a collateral ratio of at least 130% will always be maintained. According to the Tron Dao Reserve website, the collateralization ratio currently stands at just over 200%, with over $1.4 billion in reserves supporting about 700 million USDD in circulation.
How does the USDD stablecoin work?
Without getting into the specifics, the USDD stablecoin essentially pledges the following to keep its parity with the US dollar:
When the price surges beyond the peg
Consider a situation where there is more demand than supply for USD. Then, as a result of market dynamics, the price will exceed $1.
The USDD protocol briefly permits users to exchange $1 worth of TRX for 1 USDD in order to return the price to $1. TRX worth $1 is burned in this swap, and 1 USDD is created. The increase in USDD supply that results from more users performing these swaps causes the price to gradually stabilise at $1 per token.
It should be noted that there is a motivation for consumers to participate actively in the process. This is due to the fact that these TRX-to-USDD swaps offer consumers an opportunity to profit from arbitrage.
For instance, if the USDD price increases to $1, the new USDD you created by exchanging $1 worth of TRX will also be valued at $1.1 on a market outside of the network. Then, by selling that USD, you may generate a profit of ($1.1 – $1.0 =) $0.1. This may not seem like much, but if done in huge quantities, the earnings can add up to significant amounts.
When the price drops below the peg
Similar to this, if the USD price falls below $1 (let’s say to $0.9), you can purchase 1 USD on the open market for just $0.9. The protocol would then allow you to convert $1 in TRX to $1 in USDD. Each swap causes 1 USDD to be burned in the system, which subsequently lowers the amount of USDD that is in circulation.
The supply eventually declines as more consumers switch from USDD to TRX. The price then returns to the desired level, which is $1, as a result.
Regarding the rewards for taking part in the process, you might now sell your $1 worth of TRX on a public market to earn ($1- $0.9 =) $0.1 every swap.
The role of Tron Super Representatives
Be aware that for most stablecoins, price declines below the peg are more frequent. The Tron Super Representatives have a significant role to play in this.
Super Representatives (SRs), who hold TRX and are in charge of producing blocks and packing transactions, are for those who are unaware. All TRX holders have the opportunity to vote in the community vote that chooses the SRs. The top-27 vote-getters are chosen to serve as SRs, and they are crucial since they moderate the USDD price’s volatility. As follows:
The subsequent minting of TRX momentarily reduces the SRs’ mining power each time the price of the USDD stablecoin falls below $1. So, in a sense, the SRs end up paying for the community’s share of the cost of USDD price fluctuation.
However, the expense they bear is just momentary. This is due to the fact that over the long term, the SRs will receive compensation from a share of the token swap fee gathered by the USDD protocol.
The USDD tokenomics are not that complicated. You can effortlessly exchange your TRX coins for USDD because the token is based on the Tron network.
The token’s value changes over time dependent on variables like the demand-supply ratio and the value of the US dollar. However, as we discussed in the last section, the USDD protocol has a built-in mechanism that regulates the token’s price whenever it depegs from the dollar.
The USDD stablecoin’s circulating supply is currently slightly over $703 million, and in the last 24 hours, almost $160 million worth of the token has been traded.
USDD vs. UST
USDD and UST are both algorithmic stablecoins, and they have a lot in common. Even the roadmaps for the two tokens are remarkably similar. Justin Sun, though, is adamant that there is a limit to how similar things may be. In a recent blog post, he claimed that Tron was making every effort to protect USDD from the flaws that caused the UST catastrophe.
The fact that LUNA made up the great majority of UST’s collateral was one of the primary flaws of the Luna-terraUSD ecosystem. Only 15% of the collateral was made with bitcoin. Now since LUNA was an extremely volatile asset, it was clear that the basic basis of UST’s stability was precarious.
Tron, on the other hand, has made it a point to collateralize USDD with numerous premium assets.
How to buy the USDD stablecoin?
On a number of significant centralised and decentralised exchanges, you can buy or trade USDD. KuCoin, Huobi Global, Poloniex, Gate.io, and Sunswap are just a few of the more well-known ones.
You can purchase USDD with fiat on a few of these exchanges, such as Poloniex. Anyone who has already utilised a crypto exchange will find the procedure to be rather straightforward. To use Poloniex, simply take these actions (the process will be more or less similar in other exchanges)
Select “Buy with Fiat” in your exchange wallet after navigating there.
From the list of possible fiats, pick EUR.
Next, select USDD and the quantity you wish to purchase.
After reading the disclaimers, click on continue. To complete the order, be aware that you might need to present a legitimate ID.
You can find out that exchanges occasionally provide a variety of USDD staking possibilities with alluring rewards by conducting a quick online search. As usual, when a token is first listed on an exchange, the incentives are often on the higher side.
For instance, KuCoin just unveiled a “USDD High Profit Staking” programme with a 60% APR. With a 30% APY, Poloniex also developed its own staking scheme.