Tron DAO Reserve Removes $732 Million Bitcoin from USDD Collateral

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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. Sun explained that despite the recent Bitcoin withdrawal, the USDD remains well-collateralized. According to USDD’s transparency page, the current collateralization ratio stands at approximately 230%. This means the value of the assets backing USDD is more than twice the value of the stablecoin in circulation. Sun compared USDD’s mechanisms to MakerDAO’s DAI, highlighting the system's allowance for the free withdrawal of collateral when it exceeds the required amount, and the necessity for 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.

    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. For instance, DAI is collateralized at around 120%, while major players like USDT and USD Coin (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. The Tron DAO initially aimed to maintain a minimum collateralization ratio of 130%. However, critics like X user, Symbio argue that despite the stablecoin’s management by a DAO, significant changes like the Bitcoin withdrawal have occurred without apparent community approval.

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