TRON-based algorithmic stablecoin USDD is in a precarious situation of risking its peg amidst this week’s crypto contagion fanning fears of a domino effect.
An on-chain platform Lookonchain tweeted USDD started to depeg and was trading at $0.9788 on Nov. 10. It noted that the USDD vs. USDC/USDT/DAI pool was out of balance, with USDD accounting for 82.27%.
It all began when two whales swapped a total of over $11 million USDD in exchange for USDT and USDC in similar amounts.
According to the official website, the Tron stablecoin has a collateral ratio of 283%. The current supply is $725 million, and the collateral is $2.05 billion. Lookchain further checked the collateral details and found that over 99% of TRX was unavailable.
More troubling details came when all USDC assets were found to be deposited to Justlend which has been lent out, remaining only 596 million USDCs. With the addition of 14,040 in BTC, the actual Collateral ratio comes to 114%, increasing the chance of being heavily undercollateralized.
Launched in May 2022, USDD is the algorithmic stablecoin for the TRON blockchain. Founder Justin Sun earlier stated that the liquidity-strapped trading firm Alameda Research, a sister company of the financially troubled cryptocurrency exchange FTX, may have dumped its USDD holdings, causing the stablecoin to deviate from the peg.
The de-pegging of stablecoin values from their assumed exchange rate is a solid indicator of a liquidity crisis in the cryptocurrency market. Several stablecoins lost their pegs in May and June, and major lenders like 3AC, Voyager Digital, and Celsius Network experienced insolvencies.
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In June, the USDD also declined to 96 cents, according to information from cryptocurrency market monitor CoinGecko.
That said, hours after Binance announced it would not proceed with a deal to acquire troubled cryptocurrency exchange FTX, Sun of TRON blockchain and the current ambassador of Grenada to the WTO, tweeted late on 9 Nov. that he and his team were “putting together a solution” with the entity.
Sun said his staff had been working around the clock to minimize future damage but offered no other information. The post was retweeted by Sam Bankman-Fried, the CEO of FTX.