The Tron network is entering the already crowded stablecoin market this week with the launch of its own algorithmic offering.
On April 21, Tron founder Justin Sun wrote an open letter to the Tron DAO (decentralized autonomous organization). In it, he laid his plans for USDD, a new stablecoin project to be launched on May 5.
Furthermore, the new token represents an evolution from previous Tether (USDT) stablecoins that ran on the Omni and Tron networks, according to Sun. It will be the “stablecoin 3.0 era,” he added.
When USDD’s price is lower than 1 USD, users can send 1 USDD to the system and receive 1 USD worth of TRX. However, when USDD’s price is higher than $1, users can send 1 USD worth of TRX to the system and receive 1 USDD.
USDD will be issued on Tron, Ethereum, and BNB Chain. It all sounds very similar to the Terra ecosystem which is powered by LUNA collateral.
(1/2)😎Stablecoins have entered a new era!
🧐Introducing #USDD (Decentralized USD), a fully decentralized stablecoin on #TRON, making finance accessible to all by applying mathematics & algorithms.
📅#USDD on #TRON will be issued and enter circulation on May 5, 2022. pic.twitter.com/va3muw4sMG
— USDD (@usddio) April 21, 2022
Another Algorithmic Stablecoin
The Tron stablecoin is entering a very crowded market. Stablecoins currently have a $190 billion in market capitalization. This is approximately 10% of the entire crypto market cap.
The top five stablecoins include:
- Tether (USDT)
- USD Coin (USDC)
- Terra USD (UST)
- Binance USD (BUSD)
- DAI
These five represent more than 90% of the total number of stablecoins, according to CoinGecko.
Additionally, algorithmic stablecoins work on the principle of supply and demand to maintain price stability. The crypto collateral that backs them is supplied and removed to maintain the dollar peg.
The Tron DAO will manage the new stablecoin by administering a reserve with a 30% interest rate. Furthermore, it will also provide custody reserves of up to $10 billion in “highly liquid assets” to act as collateral backing for USDD.
This is exactly what Terraform Labs has done with its Bitcoin purchases which are used to back its UST stablecoin.
TRX Price Outlook
Tron’s native token, TRX, has pumped 21.5% on the day due to the launch. As a result, the token was trading at $0.086 at the time of writing.
Furthermore, TRX has bucked the trend and made solid gains of 37.5% over the past fortnight. This goes against the general market which has been in retreat.
However, the Tron token has retreated 63% from its January 2018 all-time high of $0.231.
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