USDD is a decentralized over-collateralized stablecoin
Decentralized USD, USDD is a stablecoin on the TRON, BNB Chain, and Ethereum blockchains. Since its inception, USDD has made headlines in many crypto media outlets. To give users a more comprehensive understanding of the most over-collateralized stablecoin, TRON DAO Reserve (TDR) has answered some frequently asked questions about USDD.
Summary
- USDD is a stablecoin on TRON, BNB Chain, and Ethereum.
- USDD is different from USDT, USDC, and UST by nature.
- TDR utilizes four monetary policy tools to ensure the stability of USDD. This includes benchmark interest rates, open market operations (OMO), window guidance, and the minting-burning mechanism of TRX and USDD.
As an algorithmic stablecoin, USDD was initially compared to Terra UST, which collapsed earlier this year. However, it’s worth mentioning that USDD is fundamentally different from UST.
What is USDD?
USDD is a decentralized over-collateralized stablecoin launched by the TRON DAO Reserve. The USDD protocol runs on the TRON network, connecting to Ethereum and BNB Chain utilizing the BitTorrent Chain (BTTC) cross-chain protocol. In the future, USDD will be even more accessible across various blockchains.
USDD is pegged to the US Dollar through TRX and maintains its price stability under the guidance of the TDR. It enables access to a stable and decentralized digital dollar system that lays the foundation for everyone to achieve financial liberty.
How does USDD maintain decentralization?
The core mission of USDD is to provide the blockchain world with a decentralized cryptocurrency of stable value.
Other stablecoins such as USDC or USDT are pegged to a central platform’s U.S. dollar (USD) reserves. By nature, USDC and USDT are considered centralized stablecoins with strict supervision by regulators worldwide. However, USDD represents true decentralization.
The value of USDD is backed by the over-collateralization of highly liquid crypto assets such as BTC, USDT, USDC, and TRX. This allows USDD to be free from centralized intermediaries, so users do not have to worry about their assets being frozen with or without notice. Furthermore, it enables holders of USDD to own their stablecoin fully.
What is the difference between USDC, USDT, and USDD?
Stability makes stablecoins an attractive crypto asset to many investors. However, centralized stablecoins, such as USDC and USDT, can lose their peg or stability due to their centralized nature.
USDC and USDT are bound by regulators to maintain a 1:1 reserve ratio to the USD. Therefore, if the centralized authorities of these stablecoins cannot meet their reserve requirements, this can cause the centralized stablecoins to lose their 1:1 USD peg.
USDD is free from such issues since it is entirely decentralized. Notably, USDD is not designed to peg to the USD strictly; instead, it floats up and down around it. Furthermore, the price stability of USDD is maintained through monetary policies adopted by the TDR based on market conditions.
What is the difference between UST and USDD?
The recent controversy surrounding stablecoins arose due to the LUNA and UST crash. USDD fluctuated below its USD peg partly due to market misconceptions tied to the LUNA/UST fiasco. It is essential to mention that LUNA and UST do not follow the TDR policies that USDD is subject to; instead, LUNA and UST function strictly off an algorithmic arbitrage system of burning and minting.
The lack of a reserve system multiplied UST‘s risks, failing to fulfill its 1:1 USD peg. In addition, UST’s price relied heavily on LUNA’s liquidity. As a result, investors panicked and began to sell LUNA and UST, causing prices to plummet.
Unlike UST, USDD is completely supported by a reserve system filled with liquid assets run by the TDR. Users can monitor details of the TDR assets on tdr.org in real-time.
How do TDR’s monetary policies ensure the stability of USDD?
USDD, by design, maintains a floating exchange rate to peg to USD. When the market is volatile, USDD is not considered depegged when it is within 3% up or down from the USD peg. This provides further flexibility for TDR to make the necessary monetary policy adjustments.
For example, with recent market volatility, USDD has been appropriately adjusted through TDR’s monetary policy tools. This methodology is a Linked Exchange Rate System and has successfully allowed USDD to scale effectively.
On top of that, TDR adopts four monetary policy instruments to ensure the stability of USDD, creating sustainability in the TRON ecosystem. The four policy instruments are setting benchmark interest rates, open market operations (OMO), window guidance, and the minting-burning mechanism of TRX and USDD.
TDR will also explore more monetary policy tools to foster further stability and growth of the USDD ecosystem. The ultimate goal of TDR’s monetary policy is to maintain a stable price of USDD while developing it to be the market’s most reliable and decentralized stablecoin.
For more information about USDD, check out TronDao’s recent blog post, which addresses various community questions and concerns in detail.
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