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What is USDD?

What is USDD?
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tl;dr

  • USDD, short for 'decentralized USD,' is a stablecoin governed by the TRON DAO Reserve and closely linked with the TRON blockchain.
  • USDD is overcollateralized and ranks among the top 10 stablecoins with a market cap of $725 million.
  • USDD was created by Justin Sun, the founder of TRON Network, and has legal status as authorized digital currency in Dominica.

What is USDD?

USDD, short for 'decentralized USD,' is a stablecoin governed by the TRON DAO Reserve, closely affiliated with the TRON blockchain. This stablecoin distinguishes itself as an overcollateralized digital currency, securing its place among the top 10 stablecoins with a market capitalization of $725 million.

The stablecoin was granted legal status as an authorized digital currency and medium of exchange by the commonwealth of Dominica. This means that USDD can be officially used as a recognized form of legal tender in the Carribean island. 

USDD was created by Chinese entrepreneur Justin Sun, who also founded the TRON Network. TRON, initially launched in 2017 in China, witnessed its token's Initial Coin Offering or ICO conducted just before China's ban on ICOs. Following the success of TRON, Sun ventured into the creation of USDD, further establishing his presence in the blockchain and cryptocurrency sphere.

One of USDD's notable attributes is its broad availability across various prominent blockchains, extending beyond its native TRON network. This stablecoin has found its way into ecosystems like BNB, Ethereum, Avalanche, Arbitrum, and more. This cross-chain accessibility underscores USDD's adaptability and its role as a bridge between diverse blockchain environments. USDD's wide-reaching presence not only enhances its utility but also solidifies its status as a prominent and versatile stablecoin in the cryptocurrency landscape.

How does USDD Work?

USDD operates as a decentralized stablecoin with a robust security model grounded in over-collateralization. To maintain its stability and value, USDD relies on a diverse pool of mainstream digital assets like TRX, BTC, and USDT as collateral. This over-collateralization ensures that the total value of the assets backing USDD far exceeds the circulating supply of the stablecoin. 

One of the key mechanisms that contribute to USDD's stability is the establishment of a fixed collateral ratio, which is set at 175%. This ratio means that for every 1 USDD in circulation, there are 1.7 units of collateralized assets, further fortifying USDD's resilience to market volatility. 

In the event of price fluctuations in these collateral assets, this buffer provides a safeguard, preventing USDD from losing its peg to the US dollar. USDD’s over collateralization is meant to ensure its stability and differentiate it from the failed Terra decentralized stablecoin. Terra was also an algorithmic stablecoin, but not over-collateralized and backed solely by it’s related coin Luna. 

How does USDD Work?

USDD also incorporates a Peg Stability Module (PSM), a pivotal tool launched by the TRON DAO Reserve. The PSM serves as an efficient swap mechanism that aids in maintaining USDD's peg to the US dollar. Users can seamlessly swap USDD for other stablecoins at a 1:1 ratio without experiencing slippage, ensuring that USDD consistently retains its value. This feature enhances USDD's usability, as users can confidently exchange their stable assets with minimal friction, promoting its adoption and utility within the broader cryptocurrency ecosystem.

Who or What is Backing USDD? 

USDD operates as a stablecoin under the governance of the TRON DAO Reserve. What sets USDD apart is its unique approach to stability. It leverages a combination of smart algorithms, over-collateralization, and a diverse basket of digital assets to maintain a consistent value, effectively pegging it to the US dollar.

This innovative stability mechanism ensures that for every USDD in circulation, there exists a surplus of collateral assets. This surplus, set at a predefined collateral ratio, creates a protective buffer against price fluctuations in the underlying assets. Consequently, USDD remains resilient to market volatility and retains its 1:1 peg to the US dollar.

Through this blend of algorithmic governance and over-collateralization, USDD emerges as a dependable algorithmic stablecoin. 

USDD vs. USDC vs. USDT

USDD stands out as an over-collateralized algorithmic stablecoin, setting it apart from its counterparts. It's backed by a diverse basket of digital assets, maintaining a collateral ratio of 175%, which ensures its stability against market fluctuations. USDD's unique design aims to offer users a reliable and secure store of value within the decentralized ecosystem and DeFi projects.

On the other hand, USDT is fiat-backed stablecoins, the same goes for USDC,  directly pegged to the US dollar. USDC, founded by Circle, a well-known name in the cryptocurrency industry, has gained trust among users due to its transparent and regulated approach. It's backed by a reserve of US dollars held in regulated financial institutions, providing confidence in its 1:1 peg.

USDT, while being the most widely available stablecoin, has faced scrutiny and concerns about its backing. It claims to be backed by an equivalent amount of US dollars, but doubts have arisen regarding the extent of this backing, leading to some questions about its transparency.

The Pros & Cons of USDD

One of USDD's notable strengths is its adherence to the core principles of cryptocurrencies - decentralization. It operates without a centralized authority, aligning with the ethos of blockchain technology. USDD's over-collateralization strategy is another significant advantage. By ensuring that the total collateral value far exceeds the stablecoin's circulation, it minimizes the risk of de-pegging, providing a level of security to users.

The algorithmic nature of USDD can be a double-edged sword. While it can adapt to market dynamics, it also introduces an element of unpredictability. Some may view this as a disadvantage, especially considering the history of algorithmic stablecoins like Terra, which experienced a notable collapse.

USDD Use Cases 

USDD’s stability and reliability make it a a good choice for traders, serving as a secure trading pair to hedge against market volatility or swiftly move between assets. In the world of DeFi, USDD plays a pivotal role as a stable asset for lending, borrowing, yield farming, and liquidity provision.

As an efficient medium of exchange, USDD facilitates cross-border transactions and serves as a store of value. Furthermore, some merchants and platforms accept USDD as a form of payment, contributing to its expanding utility in real-world applications

USDD Price History

USDD has demonstrated remarkable price stability throughout its existence, a notable achievement for an algorithmic stablecoin. Despite its decentralized nature, USDD has consistently maintained its peg to the US dollar, typically trading at or near $1. This stability has made it a trusted choice for those seeking a decentralized store of value or a trading pair with minimal price fluctuations.

USDD Price History

Even in the face of external events like the temporary de-pegging to $0.97 following the collapse of FTX, USDD swiftly rebounded to its intended peg of $1. This resilience showcases the effectiveness of its algorithmic design and over-collateralization strategy in mitigating price volatility.

Conclusion

The future of USDD appears promising as it continues to maintain its position as a leading overcollateralized stablecoin. Its popularity and utility in the DeFi ecosystem are expected to grow, driven by its robust algorithmic stability and decentralized nature. As the crypto space evolves, USDD is likely to see an expansion in its market capitalization and an increase in its use-cases, making it an essential component of the cryptocurrency landscape.

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