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Despite recent efforts by the Tron DAO to overcollateralize the token, Tron’s algorithmic stablecoin USDD appears to be in crisis.

During market turbulence, the theoretically stable USDD token lost its peg to the US dollar. The coin is now trading for $0.98, according to reports. TRX also dropped more than 25% from June 13 to 14, sparking fears that the token may be on the verge of its death spiral.

The native network token of Tron, TRX, can be similarly redeemed for USDD. Tron initially provided USDD stakeholders with yearly “risk-free” dividends of 30%; however, that percentage was later lowered to 10.9%. Furthermore, the token’s algorithmic backing was strengthened with an allegedly overcollateralized model to prevent it from going into a death spiral.

In reaction, Tron intervened to defend TRX and USDD.

Digging Curve 3 pool

There is a notion that it is crucial to restoring the liquidity ratio in the curve where USDD is a decentralized exchange (DEX).

When trading stablecoins, a problem is known as “slippage” causes a discrepancy between the targeted price and the actual price. The curve is a DEX that eliminates these phenomena and encourages the development of new stablecoins.

A liquidity pool is provided through USDD’s connection to the curve 3 pool. US Dollar Coin (USDC), Dai (Dai), and USDT make up Curve 3 Pool (Tether).

Moreover, when comparing the composition ratio of USDD-Curve 3 Pool, USDD makes up 85.86%, whereas Curve 3 Pool makes up 14.14%. Therefore, the USDD-Curve 3 pool receives liquidity from curve users in a 1:1 ratio, which creates an imbalance.

The high USDD-to-Curve 3 pool ratio indicates that curve users added more to the pool and removed more.

According to the Undefined Labs CEO Mo Jong-woo, “Users of the curve who wanted to minimize their losses shifted their USDD to a steady 3 curve pool when the USDD price plummeted. It appears that the rate for (USDD) will have to be reversed from the curve itself.”

Master plan

Following the acquisition of the reserve, Tron Dao Reserve declared that it would give Binance 100 million USDC (129.1 billion won) to receive TRX. This is because TRX backs the value of USDD, and if the market accumulates TRX on a large scale, it is interpreted as an expectation that TRX’s price will grow and that the USDD price would follow suit.

“If USDD fails, Tron can also collapse,” CEO Mo said. “Thus, USDD (FUD) is becoming less of a problem.”

Since June 5, Tron Dao Reserve has routinely disseminated collateral requirements and ratios in real-time. According to Tron Dao Reserve, the USDD “maintains a collateral ratio of above 200 percent,”.

The 14,040.6 BTC, 140 million USDT (Tether), 1 billion USDC, 1.96 billion, and 176 TRX (Tron) reserves that make up the Tron Dao Reserve are burnt along with the 8,968,56,087 TRX when USDD is issued.

Therefore, the collateral ratio is 310 percent when converted to the value, which equals $2,146,93,459. (about 2.9 trillion won). The 100 million USDC sent to Binance on the 15th had not yet been shown on the Tron Dao Reserve website.