Why USDD Token Might Melt Like Terra’s UST Stablecoin, According to YouTuber Coffeezilla

Charlie Taylor


Just before TerraUSD (UST) plummeted to zero, its success as the most popular “decentralized” stablecoin on the market was enviable by many, including Justin Sun, the controversial creator of the Tron blockchain. Algorithmic stablecoin called USDD, which began circulating in early May, just days before the collapse of the Terra ecosystem. famous for exposing scams in the cryptocurrency market, claims in video that USDD is the next ponzi scheme that could fall apart Luna style. USDD is changing the game by offering twice as much interest, almost 39.6% per annum according to their website, and claiming that there is no risk, because of course they would claim that, right?” asked Coffeezilla.

The suspicions with USDD

The youtuber lists the reasons that led him to distrust USDD’s promises, starting with the coin’s creator, Justin Sun, who has a long history of controversy in the crypto environment — a special report by The Verge shows how the billionaire has already scared several countries of being sued by regulators for irregular ICO and insider trading. Another suspicion about Sun is the way he disregards the past failure of algorithmic stablecoins such as UST. In his view, the UST only succumbed because it grew too fast and was over-leveraged, comparing the case to China’s housing crisis. But Sun is insistent that USDD will not have the same fate as the UST. Here, a problem pointed out by the youtuber is the fact that USDD does not even work as an algorithmic stablecoin at the moment. “The arbitrage mechanism is disabled and the creation of new USDD tokens is only released to a small number of allowed institutions”, he explains. This is important, according to Coffeezilla, because the lack of arbitrage — fundamental for this type of stablecoin — prevents it, at this first moment, from entering a death spiral equal to UST, since users do not have the power to generate and burn tokens. At the moment, the stablecoin only maintains the backing in one US dollar because there is the Tron DAO reserve, which claims on its website to have more than enough collateral to support the coin. For Coffezilla, this only works now because there is no enough investors using the coin: “They will only over-secure as long as this coin is not super successful. As more and more people invest in it, the stablecoin will no longer magically get collateral, they will remain the same. Which means that slowly, by their very success, they will become undersecured and eventually go into a death spiral like all other algorithmic stablecoins have done so far.”

The failure of algorithmic stablecoins

As the youtuber recalled, other algorithmic stablecoins have also failed in the past, such as the USDN of the WAVES network, which has led many experts, such as Justin Rice, vice president of the Stellar Foundation, to believe that this type of cryptocurrency is not capable of succeeding. long-term. Commenting on the collapse of the UST, he said that “what we see now — and this is not the first time — is an optimistic equilibrium mechanism unfolding because of natural human responses to market conditions.” What Justin Sun argues is that your stablecoin will not fail because its growth will be slow and organic. But that doesn’t actually happen, according to Coffeezilla: “USDD grew extremely fast, they grew to almost a billion dollars in just over a month and almost everything was inorganically mined by centralized entities. Remember, ordinary people cannot just print USDD.”

Justin Sun’s Wallets

The final USDD-related issue, in the youtuber’s view, is the fact that Justin Sun is the main user of the stablecoin. To reach this conclusion, he analyzed a portfolio of the businessman that indicates that he was the one who generated 80 million in USDD, half on the Ethereum network and the other on the BNB Chain. above, and yes they were transferred from Tron, Sun’s blockchain. “This means that Justin Sun himself generated 94% of all tokens out there. At the end of the day, this whole project is basically Justin Sun selling to retail traders looking for a quick buck. The wallet he identifies as Justin Sun controls the equivalent of $70 million of TRON — tokens that, if dumped on the open market, would drive down the asset’s price. “But what if you could burn a dollar of TRON and get a dollar of USDD, which is how this whole thing works, and then, without affecting the price, you sell that USDD for another currency, like USDC. As long as you can get enough people to buy your USDD offering them insane returns, you could actually cash out your TRON without ever affecting the TRON price,” explains Coffeezilla. quietly, but it would be a smart way for Sun to make a profit without affecting the price of its own currency. organic. Decentralization in this case is nothing more than a jargon that is being used to make people feel empowered”, he concludes.\r\n window.uolads.push({id: \”banner-970×250-area-1\” } );\r\n\r\n

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