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On Monday, USDD, a stablecoin issued by Tron network, lost its peg to the U.S dollar. USDD fell around 91 cents amid concerns among investors regarding tightening financial conditions, high inflation, and a potential recession.
Justin Sun, the founder of Tron, on Monday in a tweet shared that the funding rate on the Binance exchange for “shorting” or betting against TRX, the native token of the Tron blockchain, is negative 500%.
This high rate hints at the fact that many investors are “clamoring to get into that trade.” Sun claims that TronDAO will allot $2 billion to fight them.
TronDAO revealed via a tweet that it had added $650 million of USDC to its reserve.
For the uninitiated, Decentralised USD(USDD) is an algorithmic stablecoin on Tron and is pegged to the USD on a 1:1 ratio basis. It is backed by an elaborate, automated balancing mechanism that involves alternately creating and destroying units of USDD and TRX.
In addition, it is also collateralized by holding cryptocurrencies, such as bitcoin (BTC), TRX, and other stablecoins such as Circle’sCircle’s USDC and Tether’sTether’s USDT, in a standby fund called the TronDAO reserve. The design of USD is also quite similar to UST, Terra’sTerra’s stablecoin, which went through a dramatic collapse and depegged, wiping out $40 billion in market value.
Following the Celsius announcement on Monday that it suspended all withdrawals and transactions to avoid running on deposits, cryptocurrencies experienced a sharp steep decline. This event hints toward a liquidity crisis in crypto, influenced by an accelerating economy around the globe and central banks increasing interest rates and draining excess liquidity from the financial system to battle high inflation.
On Monday morning, USDD fell to as low as 91 cents on KuCoin, a leading crypto exchange, signaling a 9% drop from its supposed peg, as per the data from TradingView.
The official TronDAO website, USDD’s collateral stands at $2 billion, while the circulation supply of USDD is $723 million, implying that it has enough funds to support the stablecoin by using reserves to purchase USDD.
At the time of writing, USD was trading at $0.9799. However, it has still not recovered its dollar peg. While the price of TRX, the twin token of the stablecoin, was standing at $0.06172, down 5.15% in the past 24 hours.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
