Is Tron Foundation’s USDD as decentralized as it claims to be?

The collapse of Terra’s algorithmic stablecoin TerraUSD [UST] created nothing but chaos in the market. While this notion persists, the Tron Foundation seemed to be increasingly confident about its stablecoin USDD. Justin Sun, the creator of the network affirmed that the over-collateralization of the stablecoin would bring about more trust and confidence in the community. As Sun continued marketing USDD as the first over-collateralized decentralized stablecoin, a Twitter user suggested otherwise.

In a recent Twitter thread, user @resdegen pointed out that USDD, at present was just 92 percent collateralized by its reserves. This was clearly way lower than the 200 percent collateral ratio it entailed. The exclusion of Tron’s native crypto TRX would further bring down the collateralization ratio to 73 percent.

The Tron network has been making massive purchases over the last couple of weeks. They are doing so to maintain the collateralization level. More recently, the network bought $50 million worth of BTC as well as TRX. However, the Twitter user pointed out that this purchase hadn’t been deposited into the reserve yet.

It was even speculated that this purchase was made from a previous accumulation of 100 million USDT that was sent to Binance from the Tron reserve.

Elaborating on the same, the Twitter user-added,

6/ In addition to the undercollateralization situation, the $USDD APY has dropped from 30% to 10.9%

If we remember, the issues with $UST started when Anchor introduced the dynamic rates and the 19.5% APY dropped to 18% pic.twitter.com/O7S2ma3a3H

— Res ®️ (@resdegen) June 12, 2022

This wasn’t all. Once again, drawing a comparison between USDD and UST, @resdegen highlighted the drop in the APY. With just 11 percent APY, the community was posed with the question “Is the reward worth the risk for holders?”

The community wanted to know how USDD was decentralized and if the network was personally trading reserve assets without governance or an automated mechanism.

Tron foundation’s Justin Sun veered in and blamed the volatile market for the delay in adding the funds to the reserve.

Thanks for your input on #USDD. @trondaoreserve is actively buying crypto as you know in the past few days(the market is very volatile). We will add reserve into public address once market is stable. Furthermore, #USDD return rate will refresh everyday.

— H.E. Justin Sun 🅣🌞🇬🇩 (@justinsuntron) June 12, 2022

Is Tron’s USDT reserve in danger?

Furthermore, the Twitter user pointed out how the 140 million USDT wasn’t really Tether but jUSDT instead. 140 million USDT was reportedly deposited into prominent lending and borrowing platform, JustLend. With this, the network is pocketing some yield. However, the chances of these funds being exploited were high.

2/ That means that the 140M USDT are deposited into JustLend, a lending / borrowing protocol on the $TRX network

They are earning some yield on that, which is understandable

However, we need to consider now that those $140M are subject to smart contract and exploit risk pic.twitter.com/M9zY7bTG43

— Res ®️ (@resdegen) June 12, 2022

Therefore, the community asked Tron what it would do if JustLend succumbed to an attack.