There is tremendous focus on the crypto industry right now, although not necessarily for the right reasons. Stablecoins, while incredibly popular, remain under heavy market pressure. Tron’s USDD is the latest currency to depeg, and it continues to drift lower.
How Does USDD Work?
The introduction of USDD to the market in April 2022 was rather interesting. It is designed to be a native stablecoin to the Tron blockchain, but one with an algorithmic design. As we have seen recently with UST, algorithmic stablecoins are hit-and-miss. It appears USDD falls in the “miss” category right now, due to its ongoing depeg from the $1 value.
Interestingly, USDD was issued on BNB Chain and Ethereum along with Tron on day one. An interesting development, especially considering the currency is supposed to provide an annual yield of 30%. Maintaining price stability occurs through algorithms and smart contracts managing the circulating supply of USDD. Moreover, it is managed by TRON DAO, and if it drops below the peg, users can redeem USDD for 1 USD. However, if the price exceeds the peg, users can trade US$1 for 1 USDD.
Ongoing Depeg Sparks Concerns
Similar to what happened to UST, USDD is deviating from its peg to the US Dollar. Although users can massively redeem USDD for USD, the price isn’t restoring itself in the slightest. If anything, it continues to drift lower and lower. Since nearing the $1 peg, it has dropped to $0.99, $0.97, and even $0.995 in quick succession. That may not seem like a big difference, but it shouldn’t even exist in the first place.
Making matters worse is how USDD recently hit an all-time low of $0.947, although the price may drift lower in the coming hours and days. It is unclear why the value is going down and why the market isn’t recovering, as the core mechanics should prevent this deviation from remaining in place for too long. Additionally, there is a near 5% “arbitrage” gap for USD holders scooping up USDD below $1, assuming the stablecoin finds its peg again in the future.
Given what happened to UST in recent weeks, that return to the peg is not a guarantee. If anything, USDD may be the next stablecoin to go from $1 to $0.05 and lower in a few weeks. Developments like these will not get more people interested in algorithmic stablecoins but rather turn off people from the industry altogether.
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