Is Tron's USDD the next UST? with Justin Sun, Founder of Tron Network- Ep. 69

Overview of the Tron Network  

• One of the OG blockchains from 2017 

• PoS Smart Contract platform 

• Scalability advantage - Tron 2000 TPS; Ethereum 15 TPS 

• Largest blockchain for Tether transactions  
   

Podcast Summary / Notes 

Why Tron?

• Tether transfers through Omni Layer were very slow and expensive

  • 15-30 mins; 50-100 USD fees per transaction

  • A heavy burden on the BTC blockchain 

  • Max 3,000 transactions per day 

  • Lacked smart contract functionality 

• Migrated USDT from Omni to Tron 

  • 2-3 million transactions per day on Tron 

  • Cheap transaction costs 2-4 TRX ($0.2) 

Why USDD? 

• Crypto lacks a decentralized stablecoin 

• The majority of stablecoins are centralized

• Problem with centralized stablecoins 

  • Possibility of redemptions being frozen 

  • Lack of transparency of balance sheet (USDT)

  • Wallets can be frozen as in the case of USDC

How will USDD avoid UST’s death spiral or bank run 

• USDD uses a hybrid model inspired by other stablecoins 

• LUNA and UST

  • USD Peg was only linked to the price of LUNA 

  • UST’s price is solely reliant on LUNA’s price which ultimately led to its death spiral 

• USDD’s hybrid model takes advantage of all stablecoins in the market to guarantee the decentralization and stability of the stablecoin 

• Rolling out Peg Stability Module (PSM) mode 

  • Can use TRX and other stablecoins to mint USDD

  • Currently allows users to swap USDT and USDD 1:1 with 0 slippage

Collateral assets backing USDD 

• USDD is transparently over-collateralized (see tdrr.org or usdd.io) 

  • Everyone can check the collateralized assets and ratio (300%) 

  • Collateralized assets include TRX, USDC, USDT, and BTC

  • In the future might expand into more assets 

• Asking the community if they would accept ETH and other assets 

• Will add ETH if community feedback is good 

• USDD is expanding to other blockchains

  • Currently on TRX, BSC, ETH, Arbitrum, Polygon

• Believe L1s have the strongest security and decentralization to ensure the stability of a decentralized stablecoin 

Bootstrapping liquidity 

2 Main components of bootstrapping liquidity 

1. Decentralized Automated Market Makers 

• Sun.io and Sunswap - $300M liquidity pool 

• Uniswap and Curve (ETH) 

• Pancakeswap (BSC)

• Arbitrum, Polygon and other L2s 

2. Centralized Exchanges

• KuCoin, Huobi, OkCoin, Poloniex  

• USDD with BTC, ETH, and TRX pairs subsidized to encourage trading

• Healthy liquidity to attract users to trade stablecoins and other assets 

• Built lending market - JustLend with ~$200M worth of liquidity 

• Upcoming 

  • Collaboration with lending protocols on Ethereum and BSC 

  • Staking rewards/campaigns with stablecoin collaborations 

USDD Yield 

• Yields are subsided by Tron DAO Reserve

• Collaborated with Frax and Curve for yield structure 

  • Using CRV as a form of subsidy for USDD yield 

  • Collaborate with more parties to build USDD together 

  • Source of yield will also be diversified 

• Yield is a good way to bootstrap token adoption

• USDD competes against USDC and USDT

• Advantages of decentralized stablecoins 

  • Cannot be frozen by central authorities

  • Do not require KYC

• The backup and alternative to centralized money in case of censorship

USDD Depeg 

• The market was fearful as every coin was in freefall

  • FUD was everywhere 

  • Easy to downplay USDD and TRX during such market conditions 

• People believed USDD was the same as LUNA/UST 

  • Chose to borrow large sums of money to short TRX and USDD 

  • Some traders may have missed the LUNA/UST short; TRX/USDD is the second chance to short and make money 

• Short position/ Open interest peaked over $1bn mid-June

  • For reference, TRX has a market cap of $7bn 

• People paid 1000% APY to borrow for shorting TRX 

  • Funding rate of 1% every 8hrs - 3% per day 

• USDD regained its peg after 2-3 weeks 

  • Traders had to pay funding rates and close positions after not being able to find profits from shorting 

• Decentralized stablecoins gain more trust after surviving attacks, battle testing, and extreme fear