USDD slips off its dollar peg
Amid the crypto market crash on Monday, the recently launched Tron stablecoin USDD lost its correlation with the dollar, falling to $0.9764 according to data from CoinMarketCap.
At press time, the Tron stablecoin USDD has yet to recover after its peg to the dollar, with its price hovering around $0.97.
According to Justin Sun, founder of Tron, the USDD de-pegging occurred due to the large numbers of short sellers targeting TRX, the latter being the original coin of the Tron network, on the crypto exchange Binance.
He added that the "Tron Dow Reserve" would pledge up to $2 billion to fight short sellers.
On Monday, Sun tweeted:
The financing rate for the sale of TRX on Binance is negative 500% APR.
[Tron Dao Reserve] will use $2 billion to fight them.
I don't think it can last up to 24 hours, as the number of short positions will increase.
A short squeeze occurs when traders bet that the price of an asset will go down, but the price goes up instead, forcing them to close positions.
TRX price fell more than 16% on Monday to reach a two-month low of $0.52, down 12% on the day according to CoinMarketCap data.
What is an algorithmically stable digital currency USDD? USDD is an algorithmically stable currency, which is a type of cryptocurrency that is tied to another asset (usually a fiat currency such as the US dollar) using smart contract algorithms.
Unlike stablecoins like Tether or USDC, USDD was not initially backed by any reserves, and instead maintained its peg to the dollar through arbitrage trading between USDD and TRX.
But after the algorithmic stablecoin Terra UST collapsed last month, it wiped out $60 billion of investors' wealth in just one week.
USDD changed its operating model to include collateral in the form of Bitcoin, TRX, USDT and USDC.
The team behind USDD also promised a minimum collateral ratio of 130%, which would be higher than the 120% collateral ratio held by MakerDAO stablecoin DAI.
On Monday, Tron Dao Reserve announced a number of measures aimed at further protecting the overall blockchain industry and the crypto market.
By @natalia-irish
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