USDD

What is USDD?

USDD is a decentralized algorithmic U.S. dollar stablecoin that is overcollateralized by multiple mainstream digital assets and deployed to several different blockchains.

The USDD protocol aims to provide the blockchain industry with the most stable, decentralized, tamper-proof, and freeze-free stablecoin system. It is also intended to be completely independent of any centralized entity.

Stablecoins fill a critical niche in the cryptocurrency industry, providing users with a fast, affordable means of transferring value across borders. Pegged to fiat currencies and other major assets, they are nonetheless easier to transfer than the real-world assets they represent. This is thanks to the convenience and instant global settlement provided by blockchain technology.

Also, cryptocurrency traders often value various digital assets in U.S. dollar terms. That being said, stablecoins like USDD are safe haven assets in times of volatility, without switching back off the blockchain and into fiat money.

USDD shares similarities with failed algorithmic stablecoin UST, including the promise of high yields. In fact, while UST had a set APY of 19.5%, USDD promises a yield of up to 30%.

When Was USDD Launched?

USDD was launched on the 5th of May 2022 on Ethereum, the BNB Chain, and TRON. Blockchain agnosticism is at the core of USDD, including its use of the BitTorrent cross-chain protocol.

Who are the Founders of USDD?

USDD is the product of the TRON DAO Reserve. It’s a TRON-based blockchain guardian that oversees stablecoins on TRON, including the issuance and safeguarding of their reserve assets.

TRON DAO Reserve’s members include Alameda Research, Amber, Ankr, Mirana, Multichain, Falconx, TPS Capital, Wintermute, and Poloniex.

Credit for USDD’s founding should also go to TRON founder Justin Sun. He published an open letter shortly before USDD’s launch, saying it would bring a new era of stablecoins.

According to Sun, this third era of stablecoins would be characterized by complete decentralization. It would also end the reliance on centralized institutions to ensure price stability.

Sun described USDT’s deployment on Bitcoin using the Omni layer, characterized by low transaction throughput and high costs, as the first era. The second was TRON-based USDT with better speeds but centralized custodianship.

How Does USDD Work?

Despite this vision of complete decentralization, the TRON DAO Reserve continues to act as a custodian since the USDD project remains in its early stages.

TRON DAO Reserve backs the USDD in circulation with a select reserve of collateralized assets. As per the USDD website, total collateral currently stands at over $2.2 billion and consists of BTC, TRX, USDT, USDC, and TUSD.

The collateral backing USDD, per the protocol, must be greater than the amount of USDD in circulation. With the collateral ratio set at 130%, this makes USDD overcollateralized in a manner similar to the DAI stablecoin.

As per the latest edition of the USDD whitepaper, TRON DAO Reserve maintains USDD’s stability via monetary policies based on market conditions and a mechanism similar to open-market operations used by central banks. TRON DAO Reserve keeps USDD’s price stable by buying or selling reserve assets on a variety of markets.

The main tool of price stability, however, is algorithmic, with a minting-burning mechanism between TRX and USDD working to ensure price stability.

USDD issuance can be carried out by TRON DAO Reserve members engaging the TRX burning contract, which triggers the authorized contract and sees USDD released. Users, meanwhile, can engage with the Peg Stability Module (PSM) by depositing an equivalent value in other stablecoins to trigger issuance.

TRON DAO Reserve also sets the USDD interest rate, with the right to change it based on market conditions.

What Makes USDD Unique?

One of USDD’s standout features is its use of smart contracts. 999 billion TRC-10 USDD tokens were pre-issued by the TRON DAO Reserve, with 1 billion of these tokens being transferred to the authorized multi-sig contract.

The remainder went to the issuance contract. When the USDD reserved in the authorized contract dips below 500 million, the TRON DAO Reserve authorizes a part of the issuance contract’s USDD as a replenishment.

When USDD is issued, TRC-10 USDD held in the authorized contract is converted into TRC-20 USDD. Then it’s released either to users via PSM or TRON DAO Reserve members via TRC burning.

USDD’s claims of 30% APY also make it unique, heightening its similarity to the failed Terra Luna stablecoin ecosystem. Terra Luna offered returns of 19.5% APY on its U.S. dollar stablecoin UST.

USDD works very similarly to Terra, including the minting and burning of TRX tokens to stabilize USDD. However, it has been underlined that USDD’s 30% interest offering is a temporary marketing effort, with yields stabilizing far lower as platform adoption grows.

Furthermore, the TRON DAO Reserve’s building up of collateral reserves also echoes the Luna Foundation Guard raising $10 billion in reserves. The difference here is that the Luna Foundation Guard’s actions were too little, too late. Meanwhile, TRON DAO Reserve is establishing its collateral reserve early on.

How is the USDD Network Secured?

USDD is deployed primarily on TRON and is therefore secured by TRON’s delegated proof-of-stake consensus mechanism.

DPoS is a form of proof-of-stake (PoS) based on a system of economic rewards and punishments. It ensures that validating nodes behave according to the protocol.

TRON’s DPoS deploys 27 special nodes—Super Representatives (SR)—which produce blocks for the network. SRs are elected every 6 hours, with TRX holders who freeze their accounts carrying out a vote and selecting the top 27 to perform this key function.

Each block created on the TRON blockchain results in SRs being rewarded with 32 TRX. This comes to a total of over 336 million TRX going to SRs every year as economic incentives.

With USDD, Super Representatives have an additional purpose. They perform the role of price oracles for the stablecoin, voting for what they believe the current exchange rate of USDD to be.

What is the Use of USDD?

The main use of stablecoins like USDD is for trading. The majority of trading on cryptocurrency exchanges is done with stablecoin trading pairs. This eliminates the double price risk of prior times when most cryptocurrencies had to be traded against other cryptocurrencies.

By offering a trading pair against cryptocurrencies, USDD provides a relatively safe haven. Cryptocurrencies tend to be more volatile than most other assets, meaning that traders are often exposed to major fluctuations in asset value. USDD offers a short-term respite from price fluctuations since it is pegged to the relatively stable U.S. dollar.

USDD also offers an excellent way to move money across borders. Thanks to the extremely fast, borderless, and low-cost settlement of blockchain networks, USDD can be sent to any TRON-compatible wallet regardless of where the wallet owner is located.

USDD can also be a store of value in countries where economic conditions, such as inflation, rapidly weaken the local fiat. In these countries, the U.S. dollar is considered a store of value, and USDD is both pegged to and partly backed by the USD in the form of TRON DAO Reserve collateral holdings.

Who Controls USDD?

USDD’s management, despite its claims of decentralization, rests with the TRON DAO Reserve.

However, the project’s 4.0 “Mars” phase of its roadmap will see the TRON DAO Reserve transferring USDD issuance and management authority to the TRON USDD decentralized network.

How Much USDD Is In Circulation?

USDD has a circulating supply of just under 750 million USDD. Still, that figure is subject to constant change since the stablecoin can be issued and burned as needed.

The maximum amount of USDD that can circulate at any given time is defined by the protocol’s authorized contract. This contract is backed by the collateral held by the TRON DAO Reserve.

As per the USDD website’s transparency section, the TRON DAO Reserve holds over $2.2 billion in collateral. The authorized contract is currently at 2 billion USDD, with more than half of it not issued.

How Do You Buy USDD?

One of the easiest ways to buy USDD is to simply connect to the native Peg Stability Module with your TRON wallet and swap into USDD via another stablecoin like USDC, TUSD, or USDT. PSM offers stable prices and no slippage.

Of course, you can also pick up USDD on your choice of cryptocurrency exchange. Several major exchanges list USDD, including TRON DAO Reserve member Poloniex.

Is It Possible to Buy USDD Instantly?

Yes. The TRON blockchain can settle transactions extremely fast, meaning that PSM will be practically instant. Purchasing crypto on an exchange is instant. So, if you use the exchange’s staking interface to earn a yield on your USDD, you won’t have to worry about withdrawals, which can sometimes be slow.

How Do You Store USDD?

USDD can be stored in TRON-compatible wallets or in the custody of a third-party service, such as a centralized cryptocurrency exchange. For private custody, there are two main kinds of wallets:

• Cold wallets. These wallets don’t connect to the internet, which makes them extremely safe from hacks and other forms of attack. They include devices that are not connected to the internet or some form of physical storage of the wallet’s private keys.
• Hot wallets. Hot wallets are connected to the internet and typically come in the form of desktop clients or browser extensions. A notable example of the latter is the TronLink wallet, which was first launched on TRON’s official website and backed by the TRON Foundation.

USDD Energy Consumption

USDD is a TRON-based cryptocurrency token and, as such, makes up a small part of TRON’s energy consumption.

When TRON launched, Bitcoin and Ethereum were coming under the microscope for their use of energy via their proof-of-work consensus mechanism.

As a result, TRON was designed as a proof-of-stake protocol to cut down on the blockchain’s energy usage. PoW requires a huge number of computers to contribute an increasing amount of computing power towards securing the network. On TRON, validators simply rely on their stakes of TRX and can contribute with just one machine.

Is USDD a Good Investment?

One of the first things drawing investors to USDD is the high level of yield available on both DeFi and centralized platforms. However, beyond this, USDP doesn’t really offer any potential to appreciate beyond the U.S. dollar.

In fact, over the past few years, the dollar has been significantly outperformed by plenty of cryptocurrencies.

However, a stablecoin like USDD can be a good investment in the context of a volatile or downward-trending cryptocurrency market. Investors in countries affected by inflation and currency depreciation greater than that of the U.S. can also expect gains from USDP compared to their local currencies.

Holding fiat currency for the long term tends to be a poor idea. This is because of the inflation and long-term devaluation of currency caused by central bankers’ persistent issuance of new money.

Ultimately, stablecoins are meant to be used, and USDD is a more liquid version of the dollar that can be transacted—and settled—almost instantly. This means that traders can be more agile when using USDP as a medium of trade or a way to book profits.

Unfortunately, it could be argued that owning a stablecoin—a cryptocurrency equivalent to a fiat currency—is a risky proposition.

There are risks inherent to using blockchains and smart contracts, with hackers scrutinizing every line of code for lucrative flaws. Aside from these risks, USDD also comes very close in design to a model that has been proven flawed.

As mentioned, USDD bears many similarities to Terra Luna’s UST. Yet, lessons have been learned, and various safeguards have been put in place. Still, as it’s such a new project, it remains to be seen if USDD can survive in the long run and establish itself as a top stablecoin protocol.