Justin Sun Addresses USDD Stablecoin’s $732 Million Bitcoin Collateral Removal

TLDR:

Justin Sun defends removal of 12,000 BTC from USDD collateral
USDD is now primarily backed by TRX and USDT tokens
Concerns raised about USDD’s decentralization and governance
USDD maintains over 230% collateralization ratio
Questions remain about transparency and Sun’s influence over USDD

Tron founder Justin Sun has responded to concerns after the Tron DAO Reserve removed approximately 12,000 Bitcoin, worth around $732 million, from the collateral backing the USDD stablecoin.

This change occurred without a vote from the Tron DAO Reserve, raising questions about the stablecoin’s decentralization and governance structure.

USDD, launched in 2022 as a competitor to Terra’s now-defunct TerraUSD (UST), is an algorithmic stablecoin designed to maintain a peg to the US dollar. Following the removal of Bitcoin from its reserves, USDD is now primarily backed by Tron’s native token TRX and Tether (USDT).

Sun defended the move, stating that USDD’s mechanism is similar to MakerDAO’s DAI stablecoin. He explained that when collateral exceeds a specified amount, typically between 120% and 150%, holders can withdraw freely without approval.

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…

— H.E. Justin Sun 孙宇晨(hiring) (@justinsuntron) August 22, 2024

Sun emphasized that this is “part of the basics of DeFi 101” and cited USDD’s long-term collateralization rate of over 300% as a reason for the change, suggesting that capital utilization was inefficient.

According to the USDD transparency page, there are currently over 744 million USDD tokens in circulation. The stablecoin’s reserves list $1.7 billion worth of TRX and USDT, resulting in a collateralization ratio of over 230%.

This means USDD has more assets in reserve than stablecoins in circulation, comparing favorably to DAI’s 120% collateralization and the 100% backing of market leaders USDT and USDC.

However, the removal of Bitcoin collateral and the lack of a DAO vote on the decision have reignited concerns about USDD’s decentralization.

Critics point out that despite advertising USDD as being managed by a DAO, only one proposal has been put to a community vote since its launch. This sole vote, conducted in May 2023, concerned the use of burned TRX tokens in Tron governance.

The stablecoin has faced scrutiny in the past, with stablecoin rating agency Bluechip giving USDD its lowest rating and advising against its use. Bluechip’s assessment criticized USDD’s stability mechanisms and raised questions about the ownership of wallets containing its collateral.

USDD has experienced some volatility since its launch, reaching an all-time low of $0.92 on March 11, 2023. Despite these fluctuations, Sun maintains that the current collateralization ratio of 230% provides ample backing for the stablecoin.

In response to the concerns, Sun hinted at future upgrades to USDD, stating that the Tron DAO Reserve plans to spend time improving the stablecoin to make it more competitive in the market. However, specific details about these upgrades were not provided.