Justin Sun’s USDD Stablecoin Swaps Bitcoin for TRX as Primary Backing

Tron DAO Reserve Removes $750M Bitcoin from USDD Reserves

The sudden change was first spotted on X , sparking curiosity among users and prompting questions about the reasoning behind the move.

Justin Sun, the founder of Tron, stepped in to address the concerns, assuring users that there was “nothing mysterious” about the situation.

In a statement on X, Sun shed light on the decision, explaining that the withdrawal was a straightforward process that didn’t require any special approval.

According to Sun , the Tron DAO Reserve operates on a principle similar to MakerDAO, where collateral holders are free to withdraw their assets at will.

He also revealed that the USDD stablecoin had become inefficient in its capital allocation. With a “long-term collateralization rate” exceeding 300%, Sun implied that the reserve was holding more assets than necessary to back the stablecoin.

By withdrawing the excess Bitcoin, the Tron DAO Reserve is effectively rebalancing the USDD’s collateral composition, which now relies primarily on Tron’s native token.

While the move may have caught some off guard, Sun’s explanation suggests it’s a deliberate step towards optimizing the stablecoin’s underlying structure.

Sun also stated that the TRON DAO Reserve intends to dedicate time to improving USDD, aiming to position it as a more competitive decentralized stablecoin in the market.

However, his statement did not clarify whether the supposed decentralized organization played a role in the recent changes.

TRON DAO Reserve Defends USDD Collateral Adjustments

CCN spoke with a spokesperson at the TRON DAO Reserve who said that as the custodian of USDD, the TRON DAO Reserve oversees the management and upkeep of USDD’s collateral assets, possessing the authority to modify these assets in response to market dynamics to maintain USDD’s peg to the US dollar.

The spokesperson stated:

“In light of recent concerns, it’s important to clarify the role and intent behind the operations involving USDD and its collateral assets. These operations are carefully conducted to support ecosystem development and ensure the ongoing stability of USDD. TRON DAO Reserve actively monitors and adjusts USDD’s collateralization ratio in response to market changes. Corrective actions are taken if the ratio falls below the standard, and assets may be reallocated if they exceed the standard. This flexible approach ensures USDD maintains its stable value peg under any market conditions.”

The spokesperson added that these operations are not motivated by profit. As per the statement, this strategy mirrors the methods central banks use to adjust monetary supply. The approach, including these monetary policies and market management measures, has been thoroughly detailed in the whitepaper and consistently communicated through official channels.

CCN wanted to know how the TRON DAO Reserve perceives the impact of recent changes on the stability and market perception of USDD.

The spokesperson commented:

“Currently, USDD is backed by collateral assets that include 10,929,607,179 TRX and 19,613,090 USDT, collectively valued at over $1.76 billion, supporting the 745 million USDD in circulation. The over-collateralization ratio for USDD currently exceeds 220%, significantly higher than the industry standard of 120%. This indicates that for every 1 USDD in circulation, there are more than $2.20 in secure assets backing it.”

The spokesperson also told CCN that decisions about the management and holding of USDD collateral, including holdings at HTX, fall solely under the responsibility of the TRON DAO Reserve.

“While we deeply value community feedback and consider it in every decision, the Reserve makes these operational decisions independently, focusing on maintaining the stability and liquidity of USDD, without requiring a governance vote.”

New Strategy Raises Concerns On Centralization and Sun’s Influence

The recent shift in strategy has reignited concerns about USDD’s governance and decentralization, particularly regarding Justin Sun’s influence.

Launched in 2022 as a DAO-managed entity, USDD has seen minimal community involvement in its decision-making processes, with almost no significant decisions brought to a community vote.

The disclosure about USDD’s collateral adjustment notably came via Justin Sun’s personal social media account, not through the official channels of the Tron DAO Reserve.

Additionally, the only instance of DAO member voting regarding using burned TRX tokens occurred in May 2023.

Last year, the stablecoin evaluation firm Bluechip, often called the “Moody’s of stablecoins,” assigned USDD its lowest stability ranking .

It highlighted the stablecoin’s significant reliance on TRX and a general lack of transparency. Bluechip’s report critically pointed out:

“USDD does not have a governance system. USDD holders have no legal or code-based protection and are at the mercy of Tron DAO Reserve.”

USDD Faces Scrutiny Over Collateralization and Centralization

Currently, approximately $744 million worth of USDD tokens are in circulation, making it the seventh-largest stablecoin and one of the top 100 cryptocurrencies by market capitalization.

Its reserves, primarily consisting of TRX and USDT tokens valued at $1.7 billion, provide a collateralization ratio of over 230%. This indicates that the stablecoin is backed by more than double the assets compared to those in circulation.

However, Bluechip’s analysis presents a different picture, estimating USDD’s actual collateralization at just 53%.

This discrepancy is partly attributed to claims from the Justin Sun-backed crypto exchange Huobi, which also asserted control over the address where USDD’s former Bitcoin reserves were stored.

Bluechip’s report highlighted that nearly all of USDD’s reserves were held in a multi-signature setup rather than directly within the USDD smart contract, allowing for easier movement of the assets.

TRX, ranked tenth-largest cryptocurrency with a market cap exceeding $13 billion, is considered a significant part of USDD’s backing.

Despite market volatility, a FAQ post by USDD’s DAO in 2022 asserted that fluctuations in TRX’s price do not significantly affect USDD’s stability.

The DAO advised holders to stay rational and not be swayed by market rumors concerning the stablecoin’s price stability.

Justin Sun’s USDD Stablecoin Swaps Bitcoin for TRX as Primary Backing

Tron DAO Reserve Removes $750M Bitcoin from USDD Reserves

TRON DAO Reserve Defends USDD Collateral Adjustments

New Strategy Raises Concerns On Centralization and Sun’s Influence

USDD Faces Scrutiny Over Collateralization and Centralization

Teuta Franjkovic

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