The TRON DAO Reserve has set aside $2 billion to combat TRX short sellers, yet the USDD stablecoin remains below $1.
The USDD lost its dollar peg on Monday, as the crypto market as a whole fell.
The TRON DAO Reserve, which was created to ensure that the USDD trades at parity, has put $2 billion into defending the peg.
However, USDD has yet to regain its peg more than 24 hours after the capital was deployed.
For more than 24 hours, TRON’s USDD algorithmic stablecoin has been trading below its dollar peg.
The USDD has fallen below the peg.
USDD is fighting for its life just 40 days after its inception.
As the crypto total market cap fell below $1 trillion for the first time since January 2021, the algorithmically-backed stablecoin lost its dollar peg. In response to the depreciation, the TRON DAO Reserve, which was created to ensure that the USDD trades at parity, has put $2 billion into restoring the peg.
- “Funding rate of shorting #TRX on @binance is negative 500% APR. @trondaoreserve will deploy 2 billion USD to fight them. I don’t think they can last for even 24 hours. Short squeeze is coming,” tweeted TRON founder Justin Sun Monday morning
USDD traded at $0.98 at the time. It hasn’t regained its peg after 24 hours and $2 billion.
USDD maintains a constant dollar value algorithmically. When the stablecoin trades below $1, arbitrageurs can exchange it for TRX. When USDD trades above $1, arbitrageurs can swap $1 of TRX for one USDD, minting more USDD and boosting its supply. USDD’s computational approach matches that of TerraUSD, the failed stablecoin that lost its dollar peg in May and lost $40 billion in value.
As arbitrageurs try to benefit by exchanging 1 USD for $1 TRX, the coin is sold off. TRX has lost 16.7% since USDD’s devaluation. Sun tweeted that the TRX funding rate on crypto platform Binance is negative 500 percent APR, implying traders have established short positions on the currency to profit from a potential future decrease in value.
By spending $2 billion, the TRON DAO Reserve likely plans to buy massive amounts of TRX to create a “short squeeze” and give arbitrageurs more time to restore the USDD peg. This approach is dangerous. If there are more short bets than TRX in the TRON DAO Reserve, the token could decline.
If TRX can’t be stabilized, the TRON DAO Reserve must deploy more reserve assets to maintain USDD’s dollar peg. The DAO possesses $10.8 billion TRX, 14,040 BTC, 140,000,000 USDT, and 500,000,000 USDC in reserve, providing 248 percent collateralization for the 723,321,764 USD in circulation.
