USDD and TRX, Another case of a algorithmic stable coin?

I check regularly Defillama to see movements of money on chains.

Today, I see Tron Chain has gone up 14.78% in TVL.

Once I go and check the protocols I see JustLend as the top protocol within the chain.

Within the protocol, I see that USDD (a stable coin) is providing 19.94%. Now, i understand that this is a lending protocol and therefore the people that are borrowing will ultimately pay for this interest. Given what has happened this week with the whole debacle of UST and Luna, I decided to take a read into its whitepaper.

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Now, onto point 5 in this whitepaper:

” Adjustment of short-term price fluctuation

The USDD protocol runs on the TRON network, of which TRX is the native token and the most natural defense against USDD price fluctuations. The USDD protocol uses TRX as the base currency to price USDD. The USDD protocol maintains the market price of USDD around the target price regardless of market conditions using the following method:

● When USDD’s price < 1USD, users and arbitrageurs could swap 1USDD to 1USD worth of TRX in the protocol. When 1USDD = 0.9USD, an arbitrageur can buy 1USDD with 0.9USD in the external market and then swap 1USDD for 1USD worth of TRX in the system. After that, the arbitrageur can sell 1USD worth of TRX in the external market at 1USD. In this way, the arbitrageur spends 0.9USD to get 1USD, and earns 0.1USD without taking any risks. As a result of the above arbitrage, 1USDD will be burned, and 1USD worth of TRX will be minted. As the supply of USDD decreases, USDD’s price will increase, to the point where there is no room for arbitrage and 1USDD re-equates to 1USD.

● When USDD’s price > 1USD, users and arbitrageurs could swap 1USD worth of TRX to 1 USDD in the protocol. When 1USDD = 1.1USD, an arbitrageur can pay 1USD for TRX of the same value in the external market and then swap 1USD worth of TRX for 1USDD in the system. After that, the arbitrageur can sell 1USDD in the external market at 1.1USD. The arbitrageur spends 1USD to get 1.1USD and earns 0.1USD without taking any risks. As a result of the above arbitrage, 1USD worth of TRX will be burned, and 1USDD will be minted. As the supply of USDD rises, USDD’s price will go down, to the point where there is no room for arbitrage and 1USDD re-equates to 1USD. ”

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How is this different from Luna/UST?

USDD has a market cap of 300M$ at this point. It isn’t the same market cap of Luna/UST, and therefore, it wont have the repercussions in the market as the whole value gets depleted, however, still has the potential of liquidating holders if the principles are the same.

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15 thoughts on “USDD and TRX, Another case of a algorithmic stable coin?”

  1. It’s a Justin sun algorithmic stable coins. You couldn’t fit more red flags up a magicians sleeves than in that description of it alone

    Reply
  2. Most algorithmic stablecoins came under heavy attack these past few days with the whole LUNA / UST fiasco

    I wouldn’t be surprised at all at this point if something similar happens to TRX / UST as well (especially given Justin Sun’s history)

    Reply
  3. It doesn’t seem substantially different. Just a different blockchain that happens to be run by a pretty well-known scammer

    Reply
  4. Justin Sun is the messiah of crypto. He can do nothing wrong. He only brings blessings to his investors. Justin Sun is a true innovator and someone every leader and developer should aspire to be like.

    Reply
  5. >Within the protocol, I see that USDD (a stable coin) is providing 19.94%. Now, i understand that this is a lending protocol and therefore the people that are borrowing will ultimately pay for this interest.

    How can this be the case if you can borrow it for only 8%?

    Reply
  6. Looks like the same thing to me. The question is: how much collateralized is it? Iron finance tried this with 75% and it wasn’t enough, they got taken down just like Luna.

    I’m skeptical of any algorithmic stable coin. It makes sense that only one’s backed 100% by their peg currency work.

    Reply
  7. There are plenty of algorithmic stable coins. They probably will all depeg at some point, but in a flash crash like UST? Probably not, unless their founders are also assholes who like to constantly egg billionaires to attack the coin.

    Reply
  8. ~~different mechanism, IIRC it’s more like DAI.~~

    DAI can definitely go tits up too, but it’s slightly more robustly constructed than UST

    Reply

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