Tron DAO Decreases USDD's Bitcoin Collateral by $732 million

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by Giorgi Kostiuk

2 years ago

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  1. Understanding Collateralization Rates
  2. Sun's Reassurances on USDD's Stability
  3. Shift in USDD’s Collateral Composition


    4. On Wednesday, the Tron DAO Reserve, which oversees the USDD stablecoin, removed 12,000 Bitcoin worth $732 million from its collateral backing. This move has led to concerns about the stability and decentralization of USDD.

    Understanding Collateralization Rates

    Collateralization rate is a measure of the value of assets backing a stablecoin relative to its issuance. Justin Sun, founder of Tron, explained that despite the recent Bitcoin withdrawal, USDD remains well-collateralized. According to USDD’s transparency page, the current collateralization ratio stands at approximately 230%. Sun compared USDD’s mechanisms to MakerDAO’s DAI, highlighting that the system allows for the free withdrawal of collateral when it exceeds the required amount, and necessitates additional collateral or liquidation if it falls below a certain threshold.

    Sun's Reassurances on USDD's Stability

    Sun acknowledged that the capital utilization of USDD is not highly efficient but emphasized that the long-term collateralization rate is robust. He stated: "Currently, USDD has a long-term collateralization rate exceeding 300%, which means that the capital utilization is not very efficient." Sun also noted that the Tron DAO Reserve plans to upgrade USDD to enhance its competitiveness in the decentralized stablecoin market.

    Currently, USDD has a long-term collateralization rate exceeding 300%, which means that the capital utilization is not very efficient.Justin Sun

    Shift in USDD's Collateral Composition

    The recent removal of Bitcoin from USDD’s collateral has altered the composition of its backing assets. The stablecoin is now primarily supported by Tether (USDT) and TRX. The transparency page of USDD shows that it holds $1.7 billion worth of TRX and USDT, providing a collateralization ratio of over 230%. This new backing structure contrasts with other stablecoins in the market, such as DAI, which is collateralized at around 120%, while major players like USDT and USDC maintain a 100% collateralization ratio.

    USDD’s journey has been bumpy. Initially, it was undercollateralized, meaning its backing assets were less than the total USDD in circulation. Following the collapse of the TerraUSD stablecoin in 2022, USDD transitioned to an overcollateralized model to enhance stability. Despite the Tron DAO’s management efforts, critics argue that significant changes, such as the Bitcoin withdrawal, have occurred without apparent community approval.

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