Tron network stablecoin loses parity with US dollar and worries crypto market

The Tron blockchain stablecoin, USDD, lost its parity with the US dollar on Monday morning (13), falling to $0.91 on exchanges. At the time of publishing, however, the currency has registered a slight increase and is now trading at $0.99.

The coin lost value as cryptocurrency markets plummeted. Growing investor concerns over persistently high inflation, tightening financial conditions and a possible recession also weighed on the decline.

Tron founder Justin Sun said today on Twitter that the interest rate on the Binance exchange to bet against (“shorting”) the network’s native token, TRON (TRX), has turned negative by 500%, a whopping percentage that suggests that many investors are clamoring to enter this trade. According to Sun, TronDAO “will deploy $2 billion to combat (short selling)”.

TronDAO said in a tweet that it has added $650 million in USD Coin (USDC) to its reserve.

USDD is an algorithmic stablecoin by Tron, an all-in-one smart contract blockchain, which must maintain a one-to-one exchange rate against the US dollar. It is based on an elaborate and automated balancing mechanism that involves alternately creating and destroying USDD and TRX units.

The mechanism is also secured by holding cryptocurrencies such as TRX, Bitcoin (BTC) and other stablecoins, including Circle’s Tether (USDT) and USDC, in a fund known as the TronDAO reserve.

Its design is eerily similar to that of the TerraUSD (UST) stablecoin, which lost its price and ended up imploding a month ago, wiping out $40 billion in market value.

Cryptocurrencies dropped sharply on Monday as cryptocurrency platform Celsius announced that it had suspended all withdrawals and transactions to avoid a deposit run.

It is the latest sign of a liquidity crisis in the sector, driven by an unstable economic environment across the world, with central banks raising interest rates and draining excess liquidity from the financial system in an attempt to combat persistently high inflation.

The USDD dropped to $0.91 this morning on cryptocurrency exchange KuCoin, indicating a 9% drop from its supposed fixation, as per data from TradingView.

According to TronDAO’s official website, the USDD guarantee is $2 billion while the USDD supply in circulation is $723 million, suggesting it has enough capital to support the stablecoin using reserves to buy USDD.

At press time, USDD was changing hands around $0.99, but had not yet regained its peg to the dollar. TRX, the stablecoin’s twin token, is down 17% in the last 24 hours.

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