An extensive examination of USDD (Decentralized USD), introduced by TRON DAO Reserve in collaboration with leading blockchain entities, and accessible on TRON, Ethereum, and BNB Chain.
Stablecoin Landscape Overview
In the cryptocurrency realm, volatility reigns supreme, particularly in its early developmental stages. During this period, market fluctuations often saw significant double-digit percentage shifts on a daily basis. Consequently, there emerged a demand for stable assets — assets tethered to a stable value like the U.S. dollar — which users could easily trade into to mitigate such volatility.
The inception of stablecoins in the cryptocurrency realm traces back to BitUSD, the first stablecoin introduced in early 2014. BitUSD operated on the BitShares blockchain, a project associated with prominent figures such as Charles Hoskinson, the future founder of Cardano, and Dan Larimer, the founder of EOS. However, BitUSD failed to maintain its peg to the U.S. dollar due to a lack of a robust stability mechanism, resulting in its decline in relevance, with only around 40,000 BitUSD in circulation at its peak.
Despite BitUSD’s shortcomings, it laid the groundwork for subsequent stablecoin endeavors. Nubits, for instance, emerged as an alternative, backed by Bitcoin instead of the relatively volatile BitShares token. Nevertheless, the high volatility inherent in Bitcoin eventually led to Nubits’ demise, marking the end of its stint as a stablecoin. In the same year, Tether (USDT) was introduced, becoming the largest stablecoin by market capitalization. USDT pioneered the fiat-backed stablecoin model, where each USDT token was minted by depositing one U.S. dollar with Tether, effectively pegging its value to the dollar on a 1:1 basis.
Stablecoin Evolution
The fiat-backed stablecoin model introduced by USDT proved to be immensely popular, instilling stability and confidence among users. As a result, fiat-backed stablecoins like USDT and Circle’s USDC dominate the stablecoin market today, accounting for over 90% of its total market capitalization, which stands at USD 122 billion.
Despite the dominance of fiat-backed stablecoins, new projects continue to emerge, aiming to enhance decentralization or improve upon existing stablecoin models’ capital efficiency. MakerDAO’s DAI, launched in 2017, stands out as one of the most successful decentralized stablecoins. Initially collateralized solely by ETH, DAI’s protocol later expanded to include other assets like USDC and real-world assets such as U.S. Treasury Bills, albeit drawing criticism from decentralization proponents due to perceived centralization tendencies.
Looking Ahead
Currently, despite the existence of over 100 stablecoins in the market, the lion’s share of market capitalization is concentrated in centralized, fiat-backed stablecoins like USDT and USDC. This disparity has prompted calls from significant players in the crypto space for the development of more decentralized alternatives, aligning with the foundational principles of cryptocurrency.
Led by Justin Sun, the founder of TRON, in collaboration with the TRON DAO, USDD (Decentralized USD) emerges as the decentralized stablecoin solution for the cryptocurrency realm, offering stability, decentralization, and immunity to freezing and tampering.
Introduction to USDD (Decentralized USD) USDD (Decentralized USD) made its debut in May 2022, spearheaded by the TRON DAO Reserve and in partnership with prominent blockchain institutions. It was simultaneously launched on three Layer-1 blockchains: TRON, Ethereum, and BNB Chain. Functioning as an over-collateralized decentralized stablecoin, USDD maintains a 1:1 peg to the U.S. dollar, ensuring stability for users. Its primary objective is to provide a digital currency option that minimizes the price volatility inherent in cryptocurrencies, facilitating various transactions. USDD boasts a minimum collateralization ratio of 120% and is supported by a diversified basket of crypto assets, including BTC, TRX, and USDT.
USDD (Decentralized USD) Market Performance Currently, USDD boasts a circulating supply exceeding 725 million tokens, with the potential for total authorized issuance of up to 2 billion tokens.
USDD exhibits an average daily trading volume of around $10.4 million, with most of its trading activity occurring against other prominent stablecoins or major cryptocurrencies within the TRON ecosystem.
Notable Features of USDD
Multi-Chain Compatibility
Initially introduced on TRON, Ethereum, and BNB Chain, USDD has expanded its reach to encompass seven additional chains, including Avalanche, Fantom, Polygon, Arbitrum, Aptos, Aurora, and Optimism. This multi-chain support is facilitated by BitTorrent Chain, serving as an interoperability layer, enabling seamless USDD transfers across diverse blockchain networks. Users can effortlessly bridge USDD across various chains via cross-chain bridges like Stargate Finance, Symbiosis, Debridge, and others.
Rapid Transaction Processing
Leveraging the TRON network, USDD benefits from swift transaction speeds and the robust security framework of Layer-1 blockchain technology.
Decentralization
Functioning as a decentralized stablecoin, USDD’s minting, redemption, and governance operations operate autonomously without the need for centralized oversight or approval. This setup ensures the integrity of a tamper-proof, freeze-resistant, and decentralized stablecoin ecosystem.
Over-Collateralized Security
USDD is safeguarded by an over-collateralization strategy involving various digital assets such as TRX, BTC, and USDT. The collective value of collateralized assets far exceeds the total supply of USDD, maintaining a collateralization ratio of 204.5% at the time of this report—well surpassing the minimum ratio requirement of 120%. This substantial collateralization ratio acts as a buffer against depeg risks stemming from crypto market volatility, particularly in the assets constituting the collateral pool.
Comparatively, USDD boasts one of the highest collateralization ratios among existing stablecoins in the market.
Operational Mechanism of USDD (Decentralized USD)
Presently, USDD minting via TRX is exclusively accessible to the seven incumbent members of the TRON DAO Reserve. This select group comprises exchanges such as Poloniex, Amber Group, Ankr, Mirana Ventures, Multichain Capital, FalconX, and TPS Capital. Authorized by the TRON DAO Reserve, these members—designated as whitelisted institutions—initiate USDD issuance by staking TRX. Upon depositing TRX into the TRX Burning Contract, a corresponding value in USDD is released to the Circulating Account, subsequently transferred to the respective member’s account.
Non-members of the TRON DAO Reserve have the option to mint and redeem USDD using the Peg Stability Module (PSM), utilizing accepted stablecoins like USDC, USDT, TUSD, or USDJ.
About the Peg Stability Module
The Peg Stability Module (PSM) serves as a swapping mechanism initiated by the TRON DAO Reserve to uphold USDD’s stability. Through the PSM, users can seamlessly exchange USDD with other stablecoins at a 1:1 ratio without encountering slippage. This mechanism aids in maintaining USDD’s peg to both other stablecoins and the U.S. Dollar.
Operations by TRON DAO Reserve
To ensure the stability of USDD, the TRON DAO Reserve implements various monetary policies based on prevailing market conditions. These policies encompass setting interest rates, executing open market operations, providing window guidance, and managing the Peg Stability Module.
Collaborating with several top-tier blockchain institutions and protocols, the TRON DAO Reserve determines the interest rate for USDD, akin to how central banks influence currency supply and demand through interest rate adjustments. With the TRON ecosystem perceived as a burgeoning entity akin to emerging economies, higher interest rates are applied to incentivize capital inflow and promote USDD adoption. While the initial interest rate for USDD stood at 30%, it has since been adjusted as adoption of the stablecoin increases.
Open market operations involve the transparent buying and selling of USDD and its collateral assets. Apart from stabilizing USDD, these operations serve to positively impact public perception by publicly announcing executed trades. Importantly, profits generated from such operations are directed towards ecosystem development or the maintenance of USDD price stability, rather than personal gain.
Window guidance entails regulating the lending of USDD on partner DeFi protocols like JustLend or centralized exchanges (CEXs) during periods of market volatility. This regulation may involve restricting the lending of USDD or temporarily suspending the feature on respective platforms to mitigate the supply available for malicious short-selling activities aimed at depegging USDD.
Additionally, the PSM facilitates seamless 1:1 swaps between USDD and other stablecoins such as USDT and USDC, reinforcing USDD’s $1 peg. The TRON DAO Reserve plays a pivotal role in ensuring liquidity within the PSM, facilitating smooth trading between USDD and other supported stablecoins to uphold market operations and USDD price stability.
Availability of USDD in Markets
USDD is presently accessible across various exchanges and decentralized applications. Centralized exchanges offering USDD include HTX, Poloniex, Bybit, Kucoin, among others. In addition to centralized platforms, decentralized exchanges (DEXs) like Uniswap, PancakeSwap, Sunswap, and numerous others provide USDD among their offerings.
To enhance its adoption in the real world, USDD has forged partnerships with several payment service providers, including Alchemy Pay, FatPay, NOWPayments, and others.
Future Prospects for USDD
Presently, USDD ranks as the sixth-largest stablecoin by market capitalization, achieving this status in under two years since its launch during the 2022 bear market.
USDD facilitates seamless global trade and transactions owing to its inherent price stability and the robust backing provided by the TRON DAO Reserve. Notably, USDD has obtained legal recognition as an authorized digital currency and medium of exchange in the Commonwealth of Dominica, effective October 7, 2022.
With the support of the BitTorrent Chain and various cross-chain bridging protocols, USDD has expanded beyond its initial deployment on three chains to integrate multiple new blockchains. This expansion enhances its accessibility to a broader audience for various applications in the realms of payments and decentralized finance (DeFi).
