Justin Sun Talks USDD Stablecoin in Wake of LUNA/UST Unravel

The controversial crypto entrepreneur explains how an algorithmic stablecoin can still succeed while denying rumors he was behind the de-pegging of Terra’s failed UST.

Justin Sun didn’t anticipate Terra’s $19 billion UST stablecoin would unravel less than one week after his own algorithmic stablecoin, USDD, launched.

In late April, Sun announced that the blockchain he founded, Tron, would be creating its own algorithmic stablecoin, USDD. The controversial project drew criticism for its likeness to the Terra stablecoin UST, which, until this past week, was the largest decentralized stablecoin by market capitalization.

In a Lehman Brothers-like moment for crypto markets, UST lost its peg to the U.S. dollar on Tuesday, catalyzing a painful death spiral that all but wiped out the $30bn Terra ecosystem, including its once-white-hot LUNA tokens. A wave of extreme fear among traders led to steep declines across all cryptocurrencies, and the contagion appears to have briefly spread to other stablecoins, including Tether’s USDT and the Waves blockchain ecosystem’s neutrino USD, or USDN.

But Sun is an optimist. “I still believe in algorithmic stablecoins,” he told CoinDesk in a Zoom interview, which was scheduled before any of the market turmoil surfaced.

According to its whitepaper, Sun’s stablecoin would maintain its peg by a minting/burn process that would convert one USDD to $1 worth of TRX, the native token of the Tron blockchain. Conversely, $1 worth of TRX could be burned to mint one USDD.

As of Saturday morning, the market cap of USDD reached $270 million, according to data from CoinMarketCap. That’s a fraction of the market cap of UST prior to last week’s collapse and for now represents little threat to the asset-backed stablecoins USDT ($77 billion) and USDC ($51 billion), nor to the now-leading decentralized-finance stablecoin, $DAI ($6.4 billion).

Currently, the yields for staking Tron’s USDD are as high as 40%, about double the 20% yield offered by Terra’s Anchor Protocol.

Despite UST’s unraveling this past week, Sun is confident Tron’s $USDD will ultimately prove successful.

The controversial crypto entrepreneur (and ambassador of Grenada to the World Trade Organization) spoke with CoinDesk about how USDD will differ from UST, the $10 billion Tron DAO treasury he’s planning to build, the crypto bear market and whether he’s in any way responsible for triggering the Terra meltdown (as some #cryptotwitterati have suggested).

This interview has been edited for length and clarity.

CoinDesk: How did you get the idea to launch this decentralized stablecoin? Many critics are calling it a copy of LUNA/UST.

Justin Sun: First, I want to talk a little bit about algorithmic stablecoins. I think they are very important to our industry. Today’s stablecoins are very centralized. It’s all collateralized, which means they all need a bank, and real bank services. We call crypto a decentralized world, but today, stablecoins are the most centralized part. We wanted to design an algorithm to make sure stablecoins can basically stay decentralized.

I think the failure of LUNA was not because algorithmic stablecoins are not viable or are not doable. LUNA’s failure mainly depended on too much leverage. They grew to a dramatic market cap in a very short period of time.

When we designed USDD, we focused on the healthy growth of USDD. We want to keep our USDD market cap relatively small compared to TRX and total market cap. And also at the same time, smaller than the Tron DAO Reserve.

CoinDesk: How do you plan on building up the $10 billion reserve fund?

Sun: We acquired BTC, USDT, USDC TUSD and other stablecoins.

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