Tron DAO Reserve shed 12,000 Bitcoins to support its USDD stablecoin. The change was made without a DAO vote.
The Tron DAO Reserve, which manages the USDD stablecoin, removed $732 million worth of bitcoin in support of the stablecoin on Wednesday, fueling concerns that the entity is not as decentralized as claimed.
USDD, which has a circulating supply of just over $749 million, is now almost entirely backed by TRX, the volatile native token of the Tron blockchain.
But Tron founder Justin Sun said there is nothing to worry about.
“In the past, the Tran DAO reserve also made frequent adjustments based on the collateral factor,” Sun said. NewsQuoting his X post on the subject.
The collateral factor refers to the ratio between the cryptocurrencies backing the stablecoin and the amount of stablecoin issued.
in a Posted in XSun said the long-term collateralization rate for USDD exceeds 300%. “The use of capital is not very efficient,” he said. Capital utilization is a measure of how effectively money is being used rather than sitting as collateral.
The USDD website It lists the stablecoin's current collateralization ratio at around 230%, meaning that the value of the assets backing the USDD is more than twice the value of the stablecoin in circulation.
Launched in 2022, USDD is an algorithmic stablecoin pegged to the US dollar. Tron is promoted as decentralization managed by a decentralized autonomous entity – or DAO – called the DAO Reserve.
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Although the USDD was advertised as being run by the DAO, no vote was passed because the recent removal of the 12,000 Bitcoin backing USDD raised eyebrows.
Is it really decentralized?
USDD has had a rocky history.
The stablecoin was initially undercollateralized, meaning its backing assets were worth less than all the USDD in circulation.
Terra Blockchain Undercollateralized When the TerraUSD stablecoin collapses in 2022, USDD will switch to an overcollateralized model.
At the time, Tron was the DAO Said It plans to maintain a minimum collateral ratio of 130%.
This change, as well as many others, were not put to a vote, as is common in DAOs. USDD website lists Only one DAO vote — May 2023 proposal to use TRX tokens from stablecoin reserve in Tron governance.
The USDD has attracted many prominent critics.
Stablecoin Rating Agency Bluechip Gives USDD its lowest rating and strongly advises against using it.
Bluechips USDD estimate The Huobi exchange claims to own a wallet that previously supported Bitcoin.
The stablecoin rater also criticized the USDD's mechanism.
“The USDD has practically ineffective short-term stability mechanisms and has yet to see a theoretical long-term mechanism in action,” it said.
Surya said on Thursday X post USDD's mechanism is “non-cryptic” and has been compared to MakerDAO's DAI stablecoin.
He also hinted at future updates that could address some of the USDD criticisms.
“Tran DAO Reserve plans to spend time upgrading USDD in the future to become a more competitive decentralized stablecoin in the market,” Sun said.
USDD did not immediately respond to a request for comment.
There is Tim Craig News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].