Tron Network USDD Stablecoin Wobbles from Dollar Peg Amid Latest Crypto Crisis
The Tron network's algorithmic stablecoin Decentralized USD (USDD), championed by Tron-founder Justin Sun, dropped from its $1 anchor as the implosion of the prominent crypto exchange FTX shook investors' confidence in broader crypto markets.
USDD fell to as low as below 97 cents on multiple crypto exchanges Wednesday, after it deviated from a supposed 1:1 exchange rate with the U.S. dollar a day before.
The USDD liquidity pool on the decentralized finance protocol Curve, where users can trade USDD for other stablecoins such as USDT, USDC and DAI, is heavily imbalanced, with USDD accounting for almost 80% of assets in the pool. This imbalance suggests that more investors want to sell USDD than buy, putting downward pressure on USDD's price. The USDD exchange rate for other stablecoins was most recently around 98.5 cents.
Sun speculated in a tweet that Alameda Research, the liquidity-strapped trading firm and sister company of struggling crypto exchange FTX, might have sold its USDD holdings, kickstarting the stablecoin's deviation from the peg.
I think probably Alemeda just sold their USDD to cover the liquidity of ftx exchange. The pool currently is back with a healthy rate. 😎 pic.twitter.com/oSIzUNqE0Z— H.E. Justin Sun🌞🇬🇩🇩🇲🔥 (@justinsuntron) November 9, 2022
A Tron spokesperson told CoinDesk that they don't consider the recent decline a depeg, as Tron DAO set the acceptable level of fluctuation in USDD's price to 3% under extremely volatile market conditions.
USDD is the native stablecoin of the Tron blockchain with a $725 million market capitalization. It is designed to keep its price stable at $1, supported by a combination of trading incentives and the storage of more crypto assets in the Tron DAO Reserve than USDD's total value. It was started in May, around the time Terra network's USTC stablecoin lost its dollar peg, igniting a full-blown crisis in the broader digital asset market.
Stablecoin prices depegging from their supposed exchange rate is a tell-tale sign of a liquidity crisis in the crypto market. In May and June, several stablecoins lost their pegs while crypto firms such as Three Arrows Capital, Voyager Digital and Celsius Network faced insolvencies. USDD also dropped to 96 cents in June, according to data on cryptocurrency price tracker CoinGecko.