Tron (TRX) has moved up to third place in the DeFi division behind Ethereum (ETH) and the Binance Smart Chain. Significant impetus is being provided by its own stablecoin USDD, the concept of which is food for thought.
The importance of Tron (TRX) for the DeFi division of the crypto industry is growing noticeably – and the reason for this is warningly reminiscent of Terra (LUNA). On Tron, the algorithmic stablecoin Decentralized USD (USDD) was launched in early May as announced. USDD is attracting recognizable DeFi capital to TRX, and DeFiLlama’s numbers show Tron as the new number three ecosystem. Nearly $6 billion in TVL (Total Value Locked) is now at DeFi for Tron, an increase of nearly 50 percent over the last month. Top-ranked Ethereum (ETH) was down just over 30 percent in TVL over the same period, and the number two Binance smart chain was down 26 percent.
The notorious founder of Tron, Justin Sun, is celebrating the momentum via Twitter. In a tweet, he emphasizes the 600 million US dollars that are already being mapped via the new stablecoin USDD. This copies in concept the spectacularly crashed UST from Terra. As an algorithmic stablecoin, USDD is supposed to ensure its 1:1 connection to the US dollar by burning TRX in the same value for the issuance of new USDD. If USDD are released again, however, the automatism provides for the generation of Tron in the same value. In the case of Terra and UST, the algorithm had shown weakness under high load and then led to the collapse of the ecosystem within a few days.
Tron and USDD – is the story of Terra and UST repeating itself?
Justin Sun had announced at the launch of USDD to raise $10 billion in venture capital to double hedge the stablecoin. Backers include Alameda Research, Poloniex and other big names in the crypto industry. USDD advertises annual interest rates of 23 percent or more via DeFi protocols such as JustLend, Sun and SunSwap. For UST, it was 20 percent targeted annual interest via the Anchor protocol, which sparked a run on Terra and its stablecoin. UST was backed by about $18 billion before the crash, and even $3.5 billion in reserves from the Terra Foundation couldn’t stop the decline.
The very tempting sounding interest on USDD at Tron is meant to drive the expansion of the DeFi ecosystem. According to the web presence for USDD, issuance of the stablecoin would currently be authorized up to $2 billion. So that’s where Tron and USDD currently have room to maneuver. The price curve of USDD, on the other hand, has shown great stability so far.
Conclusion: Tron in upward trend due to USDD – skepticism remains
The plan to make Tron more attractive for DeFi through USDD is obviously working. TRX has also increased in price by a good 10 percent since the launch of USDD in a nervous overall crypto market. The coming months will show whether this success story will continue or whether USDD will also come under noticeable pressure. However, cautious investors will keep their hands off algorithmic stablecoins like USDD. Such concepts have consistently failed so far, not only with Terra and UST. By contrast, stablecoins that are classically backed by cash reserves and bonds, such as Tether (USDT), USD Coin (USDC) and Binance USD (BUSD), have proven to be largely stable even in times of crisis.