Oh Great… Another Stablecoin Collapse?
Somethings up with the Celsius network.. Now we have USDD another stablecoin, offering even higher returns than UST.. I had to learn more., But, as I jumped into this, something went wrong. Like really wrong.. Suddenly I had this big story to look into and it was starting to look like like Luna version 2.0. See USDD is an algorithmic stablecoin on the Tron network that promises returns up to 30 APY.. I like to give everything in crypto the benefit of the doubt before judgment, but, of course, Im skeptical after the whole Luna, UST, thing. And hey, maybe just maybe Ill discover a gem that actually pays an insane yield in a safe manner.. I started with the currency. Peg section.: This is where UST failed. And first I saw their overall promise to USDD resolves short term price fluctuations and cyclical price risks, with its responsive monetary policy and mintage mechanism., And then I saw how it stabilizes the price and grows the transaction scale.. Who doesnt want a huge return with stability and no risks, But how does it actually work? Well in the white paper, it says that USDD will be pegged to the US Dollar at a one to one rate.. Then I got to the bit about Over Collateralisation.. The idea is to have an insane amount of high liquidity, digital assets, backing this token. Right, so that looks good too. And it makes sense. Blast the collateral to the moon and it should be much more secure.
. So far, we can see a sensible setup for achieving stability and liquidity in an algorithmic stablecoin.. Next, I had to look at the mechanism that burns tokens to keep this thing right at 1.. This is where I expected things to get complicated until I found this. The USDD market follows the simple law of supply and demand for a pegged currency.. I like how they say: simple supply and demand., So you read it and youre. Like oh simple, you say., I guess all my concerns are gone.. Maybe this time, finally, we have a safe high, yielding algo stablecoin, except it depegged, already trading under a dollar for more than a week, and people are losing their minds. Theyre confused.. All this happened despite Over Collateralization and the burning mechanism., Even the simple law of supply and demand, hasnt seemed to help.. So what the hell is going on here Theories about what went wrong are easy to find. And they throw around big words like rugpull and Ponzi and discombobulation. No ones actually mentioned discombobulation, but its just a matter of time.. Yet this feels different from those other crypto lending crashes., Look at all that lovely collateral and it doesnt seem to have liquidity issues.. So is this a repeat of Luna or Celsius, Or is there some other type of problem that we havent seen before? Maybe its just nervousness in the market., I mean were all a little bit exhausted right now, and people get spooked.
Its totally normal. Plus believe it or not. Most of the time when a stablecoin depegs its totally fine. Its, not usually like a UST collapse that just changes an entire market., So I still need to know more.. I went back to the day of the depegging, which sounds a lot like that: time.., Never mind.! This is when USDD dropped under 1 and the Tron DAO reserve sprung into action snapping up even more assets., But it didnt get back to 1 for some reason. And even weirder. They say that its not even depegged up to a 3 drop is normal apparently. And again they have more cash than they need., So its one of those non depegging, depegging events. End of story. Goodnight, Not quite.. I didnt remember reading anything in that white paper that its normal to have 3 volatility., So I went back and checked.. I reread that the promise is to maintain the market price of USDD around the target price, regardless of market conditions. Huh. Maybe supply and demand isnt. As simple as we thought. At this point, I started to think of USDD like a hot air balloon or like a zeppelin, because thats way, cooler. Maybe well stick to the balloon for now.. If the balloon needs more height, they turn up the burner.. This is like when the USDD token loses value.. It opens the opportunity for someone to buy one USDD for under a dollar and then swap it for 1 worth of TRX tokens.
The USDD gets burned and the TRX gets minted and USDD should in theory, rise.. Then, eventually, itll hit 1 again., At which point it doesnt make sense for arbitragers to do the swap anymore.. Now, if the balloon climbs too high, they would., I dont, actually know how balloons go down., Oh vents.. How could I ever forget In USDD opening the vents means expanding the token supply to bring the price down. Simple supply and demand. More supply same demand? Price goes down., So the reverse, happens. TRX gets burned and more USDD is minted.. Another small profit for the trader and the price stabilizes., In other words, People are encouraged to take part to make those small profits. So not being at exactly 1, creates a money making opportunity that doesnt exist if its at 1. And by the way right now that Arbitrage opportunity isnt open to just everyone., But all this sounds almost too easy doesnt it Does the process only work when it climbs just a little bit high or a little low, And how does it not give them enough control to get closer than that 3 margin Of error that they mention And what would happen if USDD went down to 0.90 or 0.80 or 0.47. This is where UST failed. The system wasnt built to quickly fix that sharp of drop. Is USDD built to fix something like that To me. This minor, but sustained dip in price could be a sign that theyre not in full control.
. They just turned up the burner and it hasnt really done anything. Yet. Lets come back to Earth for a second. Before we look at that 30 APY, maybe youre sick of crypto lending, and you want to try something else.. Well, let me introduce you to todays, sponsor Pionex., See many exchanges offer trading bots, but Pionex is unique because they actually specialize in them.. You could have your classic bots like the Spot grid or the reverse grid or DCA bots, but you also have advanced options like their Spot Futures Arbitrage bot where you can profit in any market environment or the dual investment bot, which is essentially the easiest way to Do crypto options. If that last one interests, you. Theyre, actually running a promo right now, where you can use one 1200 of their money to run that bot and you get to keep the profits. Theyll, be linked down. Below. Okay., 30 APY.. This is far more than Anchor protocol. Far more than Celsius ever offer crazy. Profits. I mean 100000 invested at 30 APY for 20 years yields 18 million.. So the math shows that this is simply not sustainable for the long run., But can it be justified in the short run? The 30 return was mentioned by the controversial Tron founder Justin Sun. Yet the white paper doesnt mention this at all, and the official site just says this.. So how do I get that juicy 30 or more with no risks Im, not the only one asking that question.
Its earned by staking on the network., But its? Not all that clear how exactly that works under the hood like internally., There are so many parallels to Luna UST here. Theyre, both algorithmic stablecoins.. They both promised these outsized returns. And remember how people behind Luna and Celsius were saying everything was all right until it wasnt. Well, thats the same sort of feeling that Im getting here. But UST doesnt have the same Over Collateralization that USDD has. UST was almost entirely backed by the highly volatile Luna and a little bit of Bitcoin Celsius simply put ran out of liquidity.. Those problems have been avoided, here. And right now, USDDs market cap is far smaller than Trons.. Also, apparently it doesnt produce new Tron tokens when it falls.. Maybe Justin Sun has the answers that I need.. He said that he still believes in algorithmic stablecoins and he wants to make them more. Decentralized. USDD is planning to go full decentralized later. This year. Sun thinks that Luna just grew too fast and had too much leverage., But I kept getting this nagging feeling that there had to be more to this 30 return.. I just wasnt satisfied yet.. We cant take this stuff lightly.. These huge promises ruined so many lives with Luna and UST. People were using the Anchor protocol how it was advertised as this simple savings account and they lost everything.. I was personally hit hard by UST.. So what happens next Id love to tell you that its safe to just sink your teeth into that 30 and get on this wild balloon ride, but weve been burned before, and I just dont believe that 30 can be plucked out of thin air.
. Some people think that theres a short squeeze going on that Tron is keeping USDD at just below a dollar.. In order to incentivize traders to short Tron., Then theyll use a little bit of their capital to repeg the stablecoin potentially causing a short squeeze launching up the price of tron. And as crazy as this sounds its actually kind of reinforced by the fact that Justin Sun Tweeted the exact same thing as Do Kwon when UST depegged.. If this event was in fact as serious as it seems, would he mess around like this Maybe.? I think some people will lose money on USDD and others will earn it.. I know thats. Hardly an earth shattering prediction.. We just dont know how reliable this new token will be.. We dont know how this 30 APY will be paid. Long term. We dont even know if the founder has a plan to mess with shorts and make a boatload of cash doing it.. What we do know is theres not enough information yet to understand exactly how this will play out..