Amid Monday's crypto market crash, Tron's recently launched algorithmic stablecoin USDD lost its dollar peg, slipping to a low of $0.9764 according to data from CoinMarketCap.
At time of publication, USDD has yet to recover its dollar peg, with its price hovering around $0.98.
According to Tron founder Justin Sun, USDD's de-pegging happened because of large numbers of short sellers targeting TRX, the network’s native token, on crypto exchange Binance. He added that the Tron DAO Reserve would pledge as much as $2 billion to fight the short sellers.
“Funding rate of shorting TRX on Binance is negative 500% APR,” Sun tweeted on Monday . “[Tron DAO Reserve] will deploy 2 billion USD to fight them. I don’t think they can last for even 24 hours. [A] short squeeze is coming.”
Funding rate of shorting #TRX on @binance is negative 500% APR. @trondaoreserve will deploy 2 billion USD to fight them. I don't think they can last for even 24 hours. Short squeeze is coming. pic.twitter.com/VRExM6UK70
— H.E. Justin Sun 🅣🌞🇬🇩 (@justinsuntron) June 13, 2022
A short squeeze occurs when traders are betting on the price of an asset to go down, but the price goes up instead, forcing them to close positions.
TRX fell by more than 16% on Monday to hit a two-month low of $0.58 before rebounding to its current value of $0.60, down 5% on the day, per CoinMarketCap.
USDD is an algorithmic stablecoin, a type of cryptocurrency that is pegged to another asset (usually a fiat currency such as the U.S. dollar) using smart contract algorithms.
Unlike stablecoins such as Tether or Circle's USDC, USDD wasn't initially backed by any reserves, instead maintaining its dollar peg through arbitrage trading between USDD and TRX, the Tron network’s native token.
However, after a similar algorithmic stablecoin, Terra's UST, collapsed last month, wiping out $60 billion in investor wealth in just one week, USDD changed its operating model to include collateral in the form of Bitcoin (BTC), TRX, USDT, and USDC reserves.
Created as an algorithmic stablecoin, Justin Sun’s Terra-like stablecoin USDD is now shifting gears towards a hybrid model with improved transparency.
USDD is now reportedly over-collateralized with a collateral ratio of 226.1%, according to data from Tron DAO, the organization responsible for maintaining the collateral of USDD.
The team behind USDD also promised a minimum collateral ratio of 130%, a ratio that it said was higher than the 120% collateral ratio maintained by MakerDAO’s DAI stab...
The team behind USDD also promised a minimum collateral ratio of 130%, which would be higher than the 120% collateral ratio maintained by MakerDAO’s DAI stablecoin.
On Monday, the Tron DAO Reserve announced a number of measures meant to further “safeguard the overall blockchain industry and crypto market.”
To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve have increased 650,000,000 #USDC supply on #TRON. Currently USDC supply on TRON has reached $2.5 billion.
This included two separate purchases of 100 million USDC each (here and here), followed by another purchase of 650 million UDSC, which increased USDC supply on TRON to a total of $2.5 billion.
According to the Tron DAO Reserve’s website, the collateral ratio of the stablecoin currently stands at almost 248%.
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