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Justin Sun claims that the USDD collateralization rate exceeds 200%, the calculation method seems illogical? In reality, it is less than 100%?

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Justin Sun claims that the USDD collateralization rate exceeds 200%, the calculation method seems illogical? In reality, it is less than 100%?

TRON founder Justin Sun implemented the USDD stablecoin project in May this year, which offered up to 30% risk-free interest rate, significantly increasing TRON's TVL, currently ranking behind only Ethereum and BNB chains. Recently, he also announced that the collateral rate for USDD has exceeded 200% to demonstrate the security of USDD to users. However, the reality seems less than ideal, as there are many questionable aspects in the calculation method.

Official Calculation Method of USDD Collateralization Rate

Shortly after USDD officially announced a collateralization rate of over 200%, Twitter user Res raised doubts about its calculation method, suggesting that the actual collateralization rate is only about half of what was claimed.

According to a Medium article by USDD, the collateralization rate formula is: BTC, USDT, and TRX reserves in the TRON DAO + previously burned TRX / circulating USDD.

Based on data from the current official website, the TRON DAO reserves are approximately $718 million, burned TRX is about $700 million, and circulating USDD is around $700 million. Plugging these values into the formula gives 7.18 + 7 / 7 = 2.02, resulting in a collateralization rate of 202.22% as shown in the chart.

More Reasonable Calculation Method

However, Res argued that the burned TRX used to mint USDD should not be counted as reserves, and the official explanation for this calculation method is insufficient. Additionally, treating TRX in the TRON DAO reserves as collateral is following in the footsteps of LUNA and UST. While burning USDD can be exchanged for TRX, if there is a consensus price decline in TRX, it could lead to a death spiral.

Therefore, Res recalculated the collateralization rate using two methods:

  1. Excluding burned TRX from the calculation
  2. Excluding burned TRX and TRX in the TRON DAO reserves from the calculation

After recalculating, the collateralization rates from the two methods were 102.5% and 80%, showing a discrepancy from the official 202%.

Even taking the first calculation result as the actual collateralization rate, with only 20% of the collateral assets being stablecoins and the remaining 80% being highly volatile assets, if BTC and TRX cannot maintain stable prices and gradually decline, the collateralization rate could easily fall below 100%.

Not to mention that the official statement indicated a commitment to maintain the collateralization rate above 130%, which is currently far from being achieved. Whether USDD can sustain a 30% risk-free rate in the long term remains to be seen by the market.