Stablecoin USDD Loses Its Peg, Delivering Tron TRX Price Instability
- Algorithmic stablecoin USDD is the latest to lose its Dollar peg, raising more red flags over the use of algo stablecoins.
- On Monday, USDD fell by 1.12% against Tether (USDT) to end the day at $0.9890.
- Tron (TRX) price action reflected the unpegging, with TRX continuing to fall this morning despite a broader crypto market rally.
On Monday, Tron (TRX) joined the broader crypto market in the deep red, with a 16.1% loss. Following a modest 0.13% gain on Sunday, TRX ended the day at $0.0639. Stablecoin USDD has pressured TRX this week.
Several factors contributed to the extended sell-off, including investor sentiment towards Fed monetary policy and news of DeFi lender Celsius freezing withdrawals, swaps, and transfers.
For TRX, the USDD unpegging from the dollar added further selling pressure.
Algo Stablecoin USDD Loses Dollar Peg to Pressure TRX
This week, the crypto market faced the unpegging of another algorithmic stablecoin from the dollar.
Stablecoin newcomer USDD fell to a current week low of $0.9795. On Monday, USDD had briefly fallen to $0.98 levels before reestablishing the peg. Today’s unpegging is more sustained, raising concerns that another algorithmic stablecoin could fail and deliver another crypto market blow.
Launched in May, USDD was to take on Terra, with the algorithm set to work in a similar manner to TerraUSD and Terra Luna. In this case, USDD is backed by the native token TRX and follows the pegging mechanism of Terra Lab’s failed TerraUSD (USTC).
As explained by Tron founder Justin Sun,
“When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralized system and receive 1 USDD.”
According to Defi Llama, Tron’s total value locked (TVL) is down 18.2% to $4.68 billion.
Despite the unpegging, Tron remains the third largest DeFi blockchain, behind Binance Chain ($6.53bn) and Ethereum ($52.11bn).
A USDD failure to reestablish the dollar peg could adversely affect TRX and investor sentiment towards the broader crypto market.
For now, TRX looks to have borne the brunt of the market reaction to the unpegging, though containment could become an issue should USDD fall further back from current levels.
According to Tron DAO Reserve, the collateral ratio for USDD currently sits at 248.33%, providing a degree of comfort.
TerraUSD, Tether (USDT), and USDD have shown the adverse effects of stablecoins on the crypto market.
TRX Price Action Hinged on USDD
At the time of writing, TRX was down 4.07% to $0.0613. A mixed start to the day saw TRX rise to an early morning high of $0.0648 before hitting reverse.
The reversal saw TRX fall to a low of $0.0559 before steadying.
TRX fell through the First Major Support Level at $0.0575 before returning to $0.061 levels.
TRX will need to move through the day’s $0.0671 pivot to target the First Major Resistance Level at $0.0735. The market will need to see the USDD begin to reestablish the $1 peg to find support.
In the event of an extended rally, TRX could test resistance at $0.080. The Second Major Resistance Level sits at $0.0831.
Failure to move through the pivot would bring the First Major Support Level at $0.0575 back into play. Barring an extended sell-off, TRX should avoid sub-$0.050. The Second Major Support Level at $0.0511 should limit the downside.
Looking at the EMAs and the 4-hourly candlestick chart (below), the signal was bearish. TRX sits below the 50-day EMA, currently at $0.0747. This morning, the 50-day EMA pulled away from the 100-day EMA. The 100-day EMA converged on the 200-day EMA; TRX price negative.
A bearish cross of the 100-day EMA through the 200-day EMA would bring sub-$0.060 back into play.