Key takeaways:
- Justin Sun, the founder of the TRON blockchain, has announced a new decentralized stablecoin aptly called Decentralized USD (USDD)
- USDD’s reserves will be managed by TRON DAO, which will also aid in boosting the growth of the new TRON-base stablecoin
- USDD’s $1 peg will tethered to the value of its underlying asset TRX and will be maintained trough an arbitrage mechanism
TRON is launching USDD to take on Terra’s UST
The stablecoin sector has seen tremendous growth over the past year. The combined value of all stablecoins in circulation now represents a whopping 10% of the entire cryptocurrency market cap and the trend shows no signs of slowing down. However, currently leading stablecoins Tether (USDT) and USD Coin (USDC), which collectively boast over $130 billion in market capitalization, are centralized and backed by fiat-based reserves managed by traditional financial institutions.
To challenge the current paradigm, TRON (TRX) founder Justin Sun announced on Thursday a new stablecoin that will be launching on the TRON blockchain on May 5. Decentralized USD (USDD), as the name suggests, will take advantage of its parent chain’s decentralized settlement layer, which is designed to facilitate low-cost and near-instantaneous transactions.
The new stablecoin will be available on Ethereum and BNB Chain thanks to the specialized BTTC protocol and will see its full rollout take place in four space exploration-themed stages. In the first phase, called 1.0 Space, TRON DAO Reserve will gain custody of over $10 billion worth of “highly liquid assets” backing the USDD stablecoin.
According to the Sun’s open letter, “the TRON DAO Reserve will set its basic risk-free interest rate to 30% per annum and facilitate other decentralized and centralized organizations that accept USDD to implement consistent interest rate policies.”
Sun added that the decentralized nature of the USDD stablecoin will “safeguard private property rights,” and make it impossible for any centralized institution to take control of users’ holdings.
TRON’s $1 peg will be maintained through an arbitrage mechanism, which will let users exchange USDD for TRX and vice-versa. In this sense, the new TRON-based stablecoin will operate on a very similar basis as Terra’s UST. Case in point, TerraUSD (UST) allows users to mint UST by burning LUNA and create new LUNA by burning UST.
The concept of a decentralized stablecoin has taken off in the last year. While MakerDAO’s Dai was a pioneer in the space it never really succeeded in reaching the popularity of large centralized stablecoins.
The same can’t be said for UST. Earlier this week, the largest stablecoin on the Terra ecosystem overtook BUSD to become the third-largest stablecoin on the market, thanks to more than 900% year-over-year supply growth.
Time will tell whether TRON’s new offering will follow in the footsteps of UST, or possibly even overtake it as the biggest decentralized stablecoin in the future.
In the meantime, the native asset of the TRON ecosystem and the underlying asset of USDD, TRX, has rallied in response to the news. TRX is currently trading at $0.0681, up close to 7% in the last 24 hours. It is worth noting that the token reached as high as $0.0736 in the hours after the news broke and has since retraced a bit.
