Tron Network Hoping to Buck Algorithmic Stablecoin Doubters With Bitcoin, Tether Backing

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The Tron (TRX-USD) network has been drawing the spotlight for several weeks now after its curiously-timed release of a new product. Just days after the collapse of a major algorithmic stablecoin, Tron released its own algorithmic stablecoin. The USDD (USDD-USD) token might have some investors scratching their heads, but Tron is certain it will break the mold and be one of the safest stablecoin offerings available. It’s taking measures to accomplish that this week by acquiring a deep pool of reserves to underlie it.

In late March, Tron unveiled a major piece for its growing ecosystem of dapps by way of the USDD stablecoin. Many layer-1s have a native stablecoin or at least hope to implement one eventually; they are the first step for decentralized exchange (DEX) users when turning their fiat into an investment.

Since DEXs don’t accept fiat, trading fiat for stablecoins elsewhere first is a way around this. Moreover, they are an easy and cheap way to trade goods and services, or to send money without hefty fees.

However, there is a major hang-up some investors have with USDD: it’s an algorithmic stablecoin. Algorithmic stablecoins, which keep their peg through mathematic algorithms rather than reserves, are a controversial topic now.

In May, investors got to bear witness to one of the most spectacular crypto collapses ever in Terra Classic (LUNC-USD). The project tanked from $86 to nearly zero in a matter of days after its algorithmic stablecoin lost its peg. Since then, the idea of the model existing much longer has seemed like more of a pipe dream than a possibility.

Tron Network Promises to Not Repeat TerraUSD’s Shortcomings

The Tron network isn’t going in blind when it comes to its USDD token. Indeed, developers could have simply postponed the announcement in the wake of the Terra network’s collapse. There is a plan in place to reduce the likelihood of a repeat situation, and developers are starting by building a deep reserve of assets to back USDD.

Algorithmic stablecoins, by their very nature, don’t need reserves — mathematics keep them at their peg. Yet, as TerraUSD has proven, these algorithms aren’t foolproof, and anything that can go wrong will go wrong. So, the Tron network isn’t just relying on its algorithms, as it is announcing today. Rather, it’s backing the asset with a massive reserve of assets.

According to the network, USDD is collateralized at a ratio of 218%. This means Tron is underlying the token with more than twice the amount of necessary reserves to keep it afloat. These assets consist of over 10,000 Bitcoin (BTC-USD), 240 million Tether (USDT-USD) and 1.9 billion TRX coins.

This isn’t to say TerraUSD didn’t have a reserve; the Luna Foundation Guard held over $1 billion in assets as a backstop to the token. However, this reserve was not created until just months before the network’s collapse. Moreover, the team blew through these assets in a matter of days while trying to keep the network afloat. So, having more assets to work with is only more of an advantage to the Tron team in its endeavor.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

This news is republished from another source. You can check the original article here.

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