USDD holders are concerned about a potential USDD depeg amid the most recent crypto crash that has seen the Tron DAO stablecoin drop 3% to $0.97 earlier this week.
Several crypto critics were quick to respond to the drop, comparing the current USDD depeg to the Luna crypto crash that saw TerraUSD depeg. The UST stablecoin now sits at $0.0781, initially pegged to the dollar.
In the midst of this potential depegging, the Tron DAO Reserves continues to inject more crypto-assets into its stablecoin to protect the peg and wider crypto market. But will it work?
USDD Depeg Looms Amid Crypto Crash
According to CoinGecko, the Tron-backed USDD has now lost its peg to $1, dropping to $0.970570 on June 15.
Also concerningly, blockchain analytics platform Nansen has flagged that Oaptial, a fund that capitalised off the UST depeg is now making large transfers of USDD and other stablecoins.
Considering the current crypto market sentiment, the USDD crash was triggered by the ongoing volatile crypto market mayhem. This has led countless other cryptocurrencies to crash, including Bitcoin and Ethereum.
Citing "extreme market conditions," Tron founder Justin Sun and the DAO Reserve declared that $700 million USDC has been deployed to defend its USDD depeg. This has bolstered the collateralization of USDD to 311%. It has since added yet another $100 million USDC.
USDD Depeg Draws Comparisons To Luna and UST
Just like Terra's UST, the USDD stablecoin is an algo-stablecoin. It functions by burning Tron (TRX) to stabilise the peg of USDD.
Tron is also down 14% in the last 24 hours.
In the wake of the Terra collapse, the USDD team over-collateralised the stablecoin by acquiring Bitcoin, TRX, USDC, USDT, TUSD, and JUSD. It claimed to have a guaranteed minimum collateral of 130%. After reportedly dropping below this rate yesterday, it has now bounced to 311% following these new crypto injections.
Even after deploying funds worth $2 billion, the value of Justin Sun's USDD remains volatile, sitting at $0.971106. If the price of USDD remains sensitive to market chaos, the Tron DAO will have to deploy additional assets and funds to keep the price of USDD stable and solid amidst such times.
As the UST crash happened, Terra also bought and deployed Bitcoin and other cryptocurrencies to defend the UST peg, only for it to collapse.
In fact, Justin Sun even appeared to make a reference to this UST crash. When tweeting about deploying more collateral, he used the exact same phrase of Do Kwon, right before the full collapse.
As the depeg started, CoinGecko founder Bobby Ong compared Justin Tron to Terra's Do Kwon. "Another stablecoin depegging, another billionaire playing a high-stakes game with the market," he said. "We know how this ended for the previous coin.
"I guess it's popcorn time seeing if this peg gets restored or it spirals to death."