In early May, the collapse of the Terra-LUNA ecosystem brought a wave of distrust for algorithmic stablecoins in general.
Given the distrust, other algorithmic stablecoins are arming themselves now, making changes in their operational designs to quell the rising doubts. But more importantly, the stablecoins are trying to avoid the woes faced by TerraUSD (UST).
On June 5, TRON announced that its stablecoin USDD is overcollateralized at 218%. Tron further guaranteed a minimum collateral ratio of 130% at all times. The TRON DAO currently shows reserves of $835.9 million, comprising of Bitcoin (BTC), Tether (USDT), and TRON’s TRX token.
TRON founder Justin Sun said in the announcement:
“Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability. The $10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralized stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.”
While this might appear reassuring to investors, a fatal flaw has been pointed out by an executive of Proximity Labs, who goes by the Twitter handle ‘resdegen.’ Proximity Labs is a research and development firm targeting the Near Protocol.
In a Twitter thread, resdegen claims that TRON’s claim of USDD being over collateralized at over 200% is “technically FALSE.”
1/ This is nuts@usddio @trondaoreserve & @trondao are deceiving the market with $USDD
They are claiming that $USDD is collateralized at over 200% and this information is technically FALSE
I’m gonna explain why 🧵👇 pic.twitter.com/jPkMp0y2LE
— Res ®️ (@resdegen) June 5, 2022
In simple words, the collateral ratio of a stablecoin is the ratio of the collateral to the issued stablecoins. Therefore, USDD’s collateral ratio can be calculated as follows:
[USDD…
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