What happened: The USDD stablecoin USDD/USD, which is backed by Tron TRX/USD, has received criticism due to its algorithmic peg to the dollar. Comparisons between Tron’s USDD and Terra’s UST have become prevalent, but TRON founder Justin Sun cleared the air about this comparison in an interview with CoinGecko.
Sun told CoinGecko, “LUNA is the token for the blockchain, you can use LUNA to mint UST. But the problem for LUNA and UST is they only have one correlation. So all of the UST price is 100% based on the LUNA price. We take advantage of all the stablecoins in the market to guarantee decentralization. But also, at the same time, guarantee the safety of the stablecoin.”
Sun added that the stablecoin is over collateralized, so users can cash out at any moment regardless of the circumstance,“This provides a very good counter for the participants in the market… Right now, the overall collateralized percentage for USDD is at 300%, so it’s very healthy.” Keep in mind, however, USDD is collateralized by TRX, and a situation where USDD depegs from the dollar could cause a drop in the price of TRX.
Why it’s important: This is important due to the impact that the failure of stablecoins can have on users and surrounding ecosystems. When UST lost its dollar peg and crashed the LUNA ecosystem, not only were LUNA holders hurt, but surrounding protocols and funds were completely wiped out. Thus, it is important to learn from the failures of LUNA and make sure it does not happen again.
Also, the failure of stablecoins leads to a poor narrative for the overall crypto economy. Government officials are more likely to deploy regulations if stablecoin protocols are losing investors their savings. The market is likely to tank when trusted protocols fail. More broadly, ensuring that USDD is stable is important far beyond the TRON ecosystem, as its stability impacts the cryptocurrency market in its entirety.
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