Tron’s stablecoin USDD loses dollar peg on suspected selloff by Alameda Research

In April 2022, the Tron community launched USDD, a token pegged to the USA greenback as an “over-collateralized stablecoin,” which means its chance of slipping beneath $1 needs to be decrease as a result of extreme reserves backing its valuation.

USDD stablecoin slips beneath $1 peg

However it was not sufficient to maintain USDD’s worth anchored to $1 on Nov. 8 when some whales dumped over 11 million USDD tokens to hunt publicity in rival stablecoins Tether (USDT) and USD Coin (USDC). A day later, USDD’s worth fell to as little as $0.96, adopted by a modest restoration to $0.98 on Nov. 10. 

USDD worth efficiency on a 24-hour adjusted timeframe. Supply: Messari 

The promoting stress was seen extra broadly within the USDD liquidity pool on Curve’s decentralized finance protocol. As of Nov. 10, the pool was closely imbalanced, holding almost 82.50% in USDD and the remainder in USDT, USDC and Dai (DAI) stablecoins. 

Tron founder Justin Solar speculates that Alameda Analysis, a crypto hedge fund headed by FTX’s Sam Bankman-Fried, could possibly be the whale dumping its USDD holdings to avoid insolvency. Alameda’s steadiness sheet reportedly was 50% FTX Token (FTT), FTX’s native token that has lately fallen more than 90%.

Miscalculated collateral reserves

USDD is issued by Tron DAO Reserve (TDR), which additionally serves because the custodian of its collateral. TDR is primarily answerable for promoting the collateral to keep up USDD’s peg within the occasion of a sell-side shock.

In principle, USDD seems sufficiently backed by a $2-billion pool of crypto collateral within the type of Bitcoin (BTC), Tron (TRX) and USDC, with the reserves reportedly outweighing the stablecoin provide by over 283%.

USDD provide versus collateral. Supply:

However there’s a catch.

Presently, virtually all of the stablecoin collateral value in TDR’s reserve wallets are staked and incomes yields in JustLend, the biggest lending protocol within the Tron ecosystem by total-value-locked (TVL). In the meantime, 99% of TRX collateral is locked inside a “staking governance” contract.

TDR additionally seems to be incorrect together with burned TRX value over $725 million as collateral. Total, that leaves the DAO with about $600 million value of USDC and $236 million value of BTC in its liquefiable reserves.

In different phrases, an virtually 113% collateral ratio versus the 283% boasted.

Bitcoin, TRX costs slide

USDD’s collateral ratio may fluctuate additional as its reserve belongings, BTC and TRX, undergo price declines.

Notably, BTC’s price has plunged by more than 22% week-to-date to around $16,500 in a crypto market meltdown led by the Alameda-FTX fiasco. On the other hand, TRX wiped approximately 12% off its valuation in the same period, trading at around $0.05 on Nov. 10.

TRX/USD weekly price chart. Source: TradingView

The Tron token now eyes a break below its support long-standing support confluence, comprising its 200-week exponential moving average (200-week EMA; the blue wave) near $0.052 and its 0.236 Fib line near $0.055.

Related articles

This may push TRX on an extended decline toward the $0.022-$0.030 range (marked in red in the chart above). This area was instrumental as a consolidation channel from August 2020-January 2021 and January 2019-July 2021.

Furthermore, it served as support between February and November 2018.

Related: Buying Bitcoin ‘will quickly vanish’ when CBDCs launch — Arthur Hayes

On the identical time, Bitcoin has entered the breakdown part of its prevailing inverse-cup-and-handle sample, now eyeing $14,000 as its primary downside target.

BTC/USD weekly worth chart. Supply: TradingView

The views and opinions expressed listed below are solely these of the creator and don’t essentially replicate the views of Each funding and buying and selling transfer includes danger, it’s best to conduct your personal analysis when making a choice.