If you have learned something from the UST crash it should probably be that if something is too good to be true it probably is. So as UST cashed and burned up pops USDD. Tron´s answer to an algorithmic stable coin. And they are promising even more outrageous returns.
What is different this time?
Well if we look at the USDD it is set to work in the exact same way as UST. And that is by utilizing arbitrage. If the price of USDD is lower than $1 you can trade 1 USDD for $1 of Tron. And if it is higher you can trade $1 of Tron for 1 USDD. So in this regard, it is exactly the same system as with UST and LUNA. When the death spiral starts it will start a feedback loop causing itself to death spiral.
They have however initially removed the arbitrage part. Meaning there is no way for normal people to take advantage of the price fluctuations. They also have touted that their goal is for a much slower and more organic growth than UST had. And also highlights that the USDD is actually over-collateralized. This means that there are more crypto assets backing the value of each USDD than the USDD is worth. And at the current time, it is about a 1 to 3 relationship. Every USDD has 3 crypto dollars backing it.
It all looks like it should be safe and sound right?
What is going on behind the scenes?
As the arbitrage mechanism is turned off for USDD, this means that the once being able to mint new USDD are just a hand full of whitelisted companies, and Justin Sun of course. If we then look at the actual numbers we can see that Justin Sun has made a whopping 94% of all USDD tokens available.
And that slow organic growth looks to be nothing more than nice buzz words to feed journalists. In fact, The USDD has ballooned to over 700M in over a month. Meaning it is everything but slow and organic. This looks like it is a monster solely fed by Justin Sun.
But why would he create such a thing? Well, he claims he was inspired by the UST. And that might be more sinister than it appears. The part I think Justin Sun was inspired by was not the algorithmic part or the part where they try and strike a blow to the centralized establishment. And why not you might ask?
If we take a look at JustLend, a DAO created by Justin Sun. As a way to decentralize things and give back the power to the people. There any community member can put up a proposal that then gets voted on by the member. And in order for a quorum to be reached, and the proposal to be valid. A total of 600M votes needs to be passed. Guess who has a wallet with 600,000,001 tokens in it... Spoilers it is not me. So much for decentralization, I guess that is just another one of those "buzzwords".
The part I think he got inspired by is rather the claims that Do Kwon managed to remove 2,7B, allegedly, without it looking like it impacted liquidity or the price. And Justin Sun has a ton of Tron tokens he is sitting on. But he can not sell them. because that would crash the price of Tron. So what does he do? He invents this new Stablecoin, which he can swap his Tron for. Then offers an even more insane interest than UST, he is offering almost double. Meaning that now fresh money comes in, so he then can take out his own. All speculation of course.
If you want to take a little bit of a deeper dive into this I recommend watching Coffeezilla's video about it. It served as my inspiration for writing this post.
My recommendation is to stay as far away from USDD as you can, as it is very likely we will see history repeat itself. But of course, you are free to do with your money as you see fit, and this is not financial advice. IT is more like common sense. ;)
I have also just started a new series of weekly posts, that will go live every Friday. You can catch the seventh step here:
See you on the interwebs!
Picture provided by: https://pixabay.com/