TRON DAO Reserve has removed all bitcoins from the USDD stablecoin collateralization

What’s new? Decentralized Autonomous Organization (DAO) Tron DAO Reserve has removed all 12 000 bitcoins worth over $730 million from the collateral of the USDD algorithmic stablecoin. The bitcoin address where the asset’s reserves were stored has also been removed from the project’s website. It now reports there that USDD is only backed by Tether’s USDT stablecoins and TRON (TRX) native tokens.

USDD website

What else is known? There are currently over 744 million USDD in circulation, while reserves in USDT and TRX are estimated at $1,7 billion. Thus, the asset is overcollateralized by 230%.

In comparison, larger stablecoins with a dollar peg have a much lower figure. For example, the algorithmic DAI from the MakerDAO protocol is 120% collateralized, while the market leaders, the centralized USDT and USDC from Circle, are 100% collateralized.

USDD was launched in 2022 as an alternative to the now-defunct UST stablecoin from the Terra Do Kwon blockchain. In March 2023, it temporarily lost its peg to the dollar and dropped to a record low of $0,92.

TRON blockchain founder Justin Sun personally commented on the change, noting that TRON DAO Reserve plans to upgrade USDD to make the asset more competitive and decentralized.

The entrepreneur clarified that the current capital utilization is not very efficient as USDD’s long-term collateralization rate is above 300%. Regarding the workings of USDD, he stated the following:

“Regarding the decentralized stablecoin USDD, its mechanism is similar to MakerDAO’s DAI and is not mysterious. When your collateral exceeds the amount specified by the system (usually between 120%-150% depending on the vault), any collateral holder can withdraw any amount freely without anyone’s approval. If the collateral falls below a certain level (typically under 110%), it needs to be topped up; otherwise, the collateral may trigger liquidation.”

Source: X.com

This change once again provoked the crypto community to discuss the degree of USDD decentralization and Justin Sun’s influence on the project. USDD was supposed to be managed by DAO members, but the community has only voted on one issue since the project’s existence in May last year, and that was the use of destroyed TRX tokens.

The community also noted that the USDD pledge announcement came from Justin Sun’s personal account and not from the Tron DAO reserve. Some users claim that Sun was responsible for the move and BTC was removed from the reserves without a DAO vote

Last year, Bluechip analysts labeled USDD as high risk, noting its heavy reliance on TRX and lack of transparency. “USDD does not have a governance system. USDD holders have no legal or code-based protection and are at the mercy of Tron DAO Reserve,” the report said.

Bluechip estimates that USDD’s collateralization, contrary to official claims, is only 53%. Such a figure can be explained by the fact that Justin Sun’s Huobi crypto exchange Huobi controlled the address of USDD bitcoin reserves. The report notes that almost all USDD reserves were stored in a multi-signature wallet rather than a USDD smart contract, meaning that assets could be easily moved around.

At the time of writing, TRX is ranked 11th in the overall cryptocurrency market capitalization ranking with a market cap of $13,6 billion and is trading at $0,1564, having lost 0,3% over the day. Weekly growth was 18,5% and the asset has added 45% since the beginning of the year. USDD ranks seventh in the stablecoin ranking and 98th in the overall cryptocurrency list.

In a 2022 FAQ, TRON DAO representatives wrote that “price swings in TRX do not have a substantial correlation to USDD’s price stability, so every USDD holder is advised to remain rational and not to be misled in the face of market rumors.”

Previously, Justin Sun has actively started promoting TRON as a meme-token-centric blockchain. As a result, SunPump, a meme token launchpool launched just a week ago, has overtaken its main competitor, Pump.fun on the Solana network, in terms of daily revenue, volume of new coins, and share of their successful listings on exchanges.