Tron Launching Algorithmic USDD Stablecoin to Take on Terra

Key Insights:

• The new stablecoin will be launched on May 5 into an already crowded market.
• USDD will be backed by Tron’s native token, TRX.
• Stablecoins now represent 10% of the total crypto market capitalization.

Tron network founder Justin Sun announced that the network would be launching a new decentralized algorithmic stablecoin called USDD.

On April 21, Tron founder Justin Sun wrote an open letter to the Tron DAO (decentralized autonomous organization), outlying his plans for a new stablecoin project.

In the announcement, he stated that USDD would be launched on May 5.

Sun added that the new token represents an evolution from previous Tether (USDT) stablecoins that ran on the Omni and Tron networks (he failed to mention Ethereum, which powers around half of the Tether supply). Tron’s USDD will usher in the “stablecoin 3.0 era,” according to Sun.

The new stablecoin will be backed by Tron’s native token, TRX, as Sun explained:

“When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralized system and receive 1 USDD.”

USDD will be issued on Tron, Ethereum (ETH), and BNB Chain.

(1/2)😎Stablecoins have entered a new era!

🧐Introducing #USDD (Decentralized USD), a fully decentralized stablecoin on #TRON, making finance accessible to all by applying mathematics & algorithms.

📅#USDD on #TRON will be issued and enter circulation on May 5, 2022. pic.twitter.com/va3muw4sMG

— USDD (@usddnetwork) April 21, 2022

A Crowded Market

The stablecoin market has become very competitive over the past year, and Tron’s new baby will be entering a crowded ecosystem. The success of Terra and its algorithmic stablecoin UST has no doubt spurred the decision.

Algorithmic stablecoins work on the underlying principle of supply and demand to maintain price stability. The crypto collateral that backs them is supplied and removed to maintain its peg. Terra’s UST works by minting and burning LUNA tokens to keep the coin as close to $1 as possible.

Tron DAO will manage the new stablecoin by administering a reserve with a 30% interest rate. Additionally, it will also provide custody reserves of up to $10 billion in highly liquid assets to serve as collateral backing for USDD. This is precisely what Terraform Labs has done with its Bitcoin (BTC) purchases to back UST.

The stablecoin market is currently worth around $190 billion, representing almost 10% of the entire crypto market capitalization. The top five stablecoins are Tether (USDT), USD Coin (USDC), Terra USD (UST), Binance USD (BUSD), and DAI, which represent 93% of the total of 81 stablecoins listed by CoinGecko.

TRX Price Outlook

Tron’s native token has gained 8.7% on the day in response to the announcement. At the time of writing, TRX was trading at $0.068; however, it has lost 70% from its January 2018 all-time high of $0.231.