CNBC: Under extreme market conditions, the advantages of over-collateralized stablecoin USDD stand out
TechFlow Selected TechFlow Selected
CNBC: Under extreme market conditions, the advantages of over-collateralized stablecoin USDD stand out
Under extreme market conditions, USDD will not experience the same degree of de-pegging and collapse as UST.
Navigating Web3 tides with focused insightsRecently, amid significant volatility across the entire cryptocurrency market, stablecoins—cryptocurrencies designed to maintain a stable market price—have come under intense scrutiny. Regarding USDD, an over-collateralized stablecoin launched just before the latest turmoil in the stablecoin market, CNBC, a leading global financial media outlet, published an analysis stating that under extreme market conditions, USDD would not experience the same degree of de-pegging and collapse as UST. Below is the original CNBC article titled "Another Algorithmic Stablecoin Loses Its Peg! Will a 'Terra-Style' Tragedy Repeat Itself?"
The controversial stablecoin USDD, introduced by Tron founder Justin Sun shortly before the algorithmic stablecoin TerraUSD collapsed, is now struggling to maintain its peg to the U.S. dollar.
USDD is an algorithmic stablecoin meant to hold a 1:1 value with the U.S. dollar. But on Sunday, it dropped to a low of 93 cents per coin. To prevent a run on the stablecoin, USDD’s developers have accumulated nearly $2 billion worth of Bitcoin and other cryptocurrencies as reserves to provide a buffer.
This has raised concerns that USDD might follow in the footsteps of TerraUSD (UST), losing its peg and ultimately collapsing. In May, UST’s collapse triggered another broad sell-off in the crypto market, which has intensified in recent weeks due to worsening liquidity crises.
The TRON DAO Reserve, responsible for overseeing and managing USDD, stated that given USDD's “decentralized” nature, some degree of price fluctuation is expected.
Last week, the TRON DAO Reserve tweeted officially: "Fluctuations within a certain range for USDD are inevitable. Currently, the market volatility remains around 3%, which is acceptable. We will closely monitor market movements and take appropriate actions accordingly."
On Wednesday, USDD was trading at approximately 97 cents per coin.
Despite concerns about a repeat of the Terra 2.0 incident, experts say such a scenario is unlikely because USDD is much smaller in scale than UST and has far lower adoption among crypto investors.
What Is USDD?
In early May, just days before UST fell below the $1 threshold, Tron launched USDD. Over the past week, amid escalating sell-offs, USDD has been trading below its intended dollar peg.
Unlike stablecoins backed by large amounts of cash and cash-like assets, USDD relies on complex algorithms—specifically involving Tron’s native token TRX—to maintain its 1:1 peg with the U.S. dollar.
This mechanism operates similarly to how Terra’s UST functioned: for every UST minted or burned, an equivalent amount of its sister token Luna would be burned or minted. This approach allows stablecoins to maintain their dollar peg without requiring massive asset reserves.
Another similarity between USDD and UST is that USDD’s issuers have purchased substantial quantities of other tokens as reserve assets to support its price and prevent mass investor withdrawals. As a cautionary tale, Terra previously acquired billions of dollars worth of cryptocurrencies in an attempt to uphold UST’s status as a “stablecoin,” but this effort ultimately proved futile.
Monsur Hussain, Senior Director at Fitch Ratings’ financial institutions group, said USDD faces risks similar to UST by using cryptocurrencies as reserves. He added: "During times of turmoil, prices among cryptocurrencies are highly correlated."
USDD also offers investors deposit yields as high as 39%. Earlier, the crypto lending platform Anchor similarly promised UST holders annual yields of up to 20%. Many investors believe such high returns are unsustainable in the current environment.
"TRX and USDD father" Justin Sun is a publicity-savvy crypto entrepreneur who, like Terra founder Do Kwon, frequently promotes his projects on Twitter and engages with critics. Sun has previously been involved in several controversies and promotional stunts. In 2019, he paid $4.6 million to win a charity lunch with Warren Buffett but later cited illness for missing it. A year later, the expensive “mutual pursuit” finally took place.
Not Following Terra’s Path
That said, there are significant differences between USDD and UST.
For one, USDD is nowhere near as large in scale as Terra: At its peak, Terra’s UST and Luna had a combined market value of $60 billion. Analysts say even if USDD were to collapse, it wouldn’t inflict the same level of damage on the crypto market as Terra did.
Dustin Teander, research analyst at crypto data firm Messari, said “USDD does not yet occupy a position in the crypto market comparable to that of UST.” Teander added that USDD’s usage is far more limited compared to pre-crash UST.
According to public blockchain records, around 10,000 accounts on the Tron network hold USDD, while only over 100 accounts on Ethereum hold the token. Hussain noted: “Even if USDD were to fail, it wouldn’t cause the same level of contagion or fear as UST or LUNA.”
Unlike UST, which was only partially backed by cryptocurrencies, USDD aims to be over-collateralized, meaning its reserve assets always exceed the total circulating supply of USDD.
The TRON DAO Reserve says its total reserve assets exceed $1.9 billion, including Bitcoin and other cryptocurrencies, with stablecoins USDC and USDT clearly included. Additionally, USDD’s total supply is only about $700 million. As Teander put it, this significantly reduces the likelihood of a Terra-style collapse.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
@CNBCi
