Tron’s decentralized algorithmic stablecoin, known by its ticker USDD, slipped slightly below $0.97 on Monday, its lowest since June 22, before recovering to $0.98 after Justin Sun took off to Twitter to announce that he’s deploying more capital to defend USDD dollar peg.
According to the transaction data shared by Sun, he swapped more than $570,000 in Tether and $203,000 in USDC stablecoin for USDD. Tron's founder also emphasized that the algorithmic stablecoin has a collateral ratio of 200%.
Since the end of October, Tron’s stablecoin has consistently traded below its intended $1 benchmark. Today's drop in price comes amid USDD supply and demand imbalance in the Curve stablecoin pool, where users can trade it against other three stablecoins. At the time of writing, USDD accounted for 84% of the pool’s total liquidity, which suggests that traders increasingly dump it in favor of DAI, USDC, and USDT.
“Certain % of volatility is unavoidable,” Tron DAO Reserve, the organization tasked with maintaining USDD price stability, tweeted back in June. “Currently, the market volatility rate is within +- 3%, an acceptable range. We will watch the market very closely and act accordingly.”
Originally, Tron DAO reserve planned to sustain its stablecoin dollar peg by the mint-and-burn mechanism and USDD/TRX arbitrage, much like Terra’s now-defunct UST stablecoin. However, this model was revised after the UST meltdown in May. Now, Tron claims to have amassed vast reserves of Bitcoin, USDC, TRX, and other cryptos worth close to $1.5 billion to provide a buffer in case of an unexpected bank run.