Tron DAO Reserve Takes Steps to Alter 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, overseeing the USDD stablecoin, removed 12,000 Bitcoin worth $732 million from its collateral. This move has led to concerns about the stability and decentralization of USDD.

    Understanding Collateralization Rates

    Collateralization rate measures the value of assets backing a stablecoin relative to its issuance. Justin Sun, founder of Tron, noted that despite the recent Bitcoin withdrawal, USDD remains well-collateralized. According to current data, the collateralization ratio stands at approximately 230%, meaning the value of the assets backing USDD is more than twice the value of the stablecoin in circulation. Sun also compared USDD’s mechanisms to MakerDAO’s DAI, stating that USDD’s system allows for the free withdrawal of excess collateral and requires additional assets or liquidation if their value falls below a certain level.

    Sun’s Reassurances on USDD’s Stability

    Sun acknowledged that USDD's capitalization 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 mentioned plans by the Tron DAO Reserve 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 changed the composition of its backing assets. The stablecoin is now primarily supported by Tether (USDT) and TRX. USDD's transparency page shows it holds $1.7 billion worth of TRX and USDT, providing a collateralization ratio of over 230%. This contrasts with other stablecoins in the market, such as DAI, collateralized at around 120%, and major players like USDT and USDC, maintaining a 100% collateralization ratio.

    USDD's journey has been bumpy. Initially, it was undercollateralized, and following the collapse of TerraUSD in 2022, transitioned to an overcollateralized model. The Tron DAO initially aimed to maintain a minimum collateralization ratio of 130%, but critics argue that significant changes like the Bitcoin withdrawal have occurred without apparent community approval.

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