Tron Launches UST Competitor USDD, Promises 30% APY

Key Points

• Tron has released its USDD algorithmic stablecoin.
• Tron aims to raise $10 billion for its decentralized stablecoin reserve called “TronDAO.”
• Promised yields of 30% per annum could attract significant demand for USDD.

Ethereum (ETH) competitor blockchain Tron has launched its much-hyped algorithmic stablecoin called decentralized USD (USDD) on Thursday.

According to its white paper, USDD will be pegged 1:1 with the US dollar and will maintain this peg in a similar way to Terra’s popular UST stablecoin, utilizing an arbitrage-driven mint-burn mechanism backed by TRX, the native token on the Tron blockchain.

When USDD falls below $1.0, traders can use the peg mechanism to swap USDD for exactly $1.0 worth of TRX, thus, reducing the supply of USDD. They can, then, immediately sell the TRX and pocket the difference.

Equally, if USDD rises above $1.0, traders can swap exactly $1.0 worth of TRX for USDD, which, then, could theoretically immediately sell for actual USD, thus, again profiting from arbitrage.

TronDAO

Tron has said it aims to raise $10 billion for its TronDAO, similar to the Luna Foundation Guard’s plans to raise $10 billion to back its UST stablecoin. However, Tron said TronDAO will be “the first decentralized reserve in the blockchain industry.”

In his open letter, Justin Sun said that TronDAO will aim “to safeguard the overall blockchain industry and crypto market, prevent panic trading caused by financial crises and mitigate severe and long-term economic downturns.”

30% promised APY to boost USDD demand

“Upon its establishment, the TRON DAO Reserve will set its basic risk-free interest rate to 30% per annum and facilitate other decentralized and centralized organizations that accept USDD to implement consistent interest rate policies,” said USDD’s white paper.

Crypto analysts compared this pledge for a guaranteed 30% APY on USDD to the Anchor Protocol on the Terra blockchain, which, for most of the last year, had offered an APY of 19.5% on UST.

Attractive yields on the Anchor protocol, which recently fell to a still attractive 18%, were a key driver behind the rise in UST’s market cap from around $2.0 billion this time last year to current levels at $18.68 billion. That made UST the third-largest stablecoin by market cap after USDT and USDC.

TRX/USD was last trading just above the $0.080 mark, having surged to fresh annual highs at $0.0.90 per token on Thursday in anticipation of the USDD launch.

If USDD can attract solid initial demand, a break above $0.10 would be on the cards.