USDd has had 750 million TRX worth of Bitcoin reserves taken away. Justin Sun: The collateral ratio is high, and everyone can freely withdraw.

TRON founder Justin Sun's stablecoin USDD is currently ranked seventh in the stablecoin market with a total circulation of 740 million US dollars. However, there have been recent reports of TRON DAO Reserve removing nearly 750 million US dollars worth of Bitcoin reserves. Can USDD's collateral ratio still support this move? How does Sun explain this incident?

Tron DAO Removes Nearly $750 Million in Bitcoin Reserve

After Tron DAO Reserve removed nearly $750 million in Bitcoin reserves on Wednesday, it sparked concerns within the community. However, Justin Sun reassured everyone that there was nothing to worry about!

The mechanism of the decentralized stablecoin USDD is similar to MakerDAO's DAI. When the collateral exceeds the system's specified amount, typically between 120% to 150%, any collateral holder can freely withdraw without permission.

He also mentioned that the long-term collateralization rate of USDD exceeds 300%, indicating inefficient fund utilization. TRON DAO Reserve plans to spend time upgrading USDD in the future to make it a more competitive decentralized stablecoin in the market.

How is the Collateralization Rate of USDD Calculated?

TRON founder Justin Sun implemented the stablecoin USDD plan in May 2022 as a competitor to the now-defunct Terra UST, boasting a 30% risk-free interest rate that significantly increased TRON's TVL.

However, there were doubts raised at the time about the calculation method Justin Sun claimed for USDD's collateralization rate exceeding 200%.

Justin Sun claimed that the collateralization rate of USDD exceeds 200%, but the calculation method seems illogical? Is it actually less than 100% in reality?

According to a Medium article about USDD, the collateralization rate formula is: TRON DAO's BTC, USDT, and TRX reserves + previously destroyed TRX / circulating USDD.

Current Collateralization Rate Only 40%?

According to the official website, the circulating supply of USDD is $740 million, with a collateralization rate of up to 230%. However, only $19.44 million of USDT is supported, accounting for only 1.1% of the total collateral.

Only 1.93 billion TRX, worth about $300 million, is actually collateralized by TRON DAO Reserve. The majority of TRX collateral is burned TRX, valued at around $1.4 billion.

The author is puzzled as to why the burned TRX used to mint USDD is counted in the reserve. Excluding the burned TRX, the collateralization rate of USDD is only 40%. According to Justin Sun's post:

If the collateral falls below a certain level, typically 110%, it needs to be replenished; otherwise, it may trigger liquidation, which is part of the basic knowledge of DeFi 101.

So, what's next for USDD?

In early July, Justin Sun announced on X that his team is developing a stablecoin that allows users to transfer without paying gas fees. Does Justin Sun have other plans for the stablecoin landscape?

Justin Sun: Tron will issue a native stablecoin, and users can transfer without paying gas fees