Terra has shown that a decentralized stablecoin with a high interest rate is possible. UST has almost 20% APY and made Terra's blockchain the second with the most value locked on DeFi.
Tron seems to want to get in this model of business and on the 5th of May will launch its own stablecoin called USDD. This is an algorithmic decentralized stablecoin.
How will USDD work?
This stablecoin will have the same principle of UST, it will be backed first by 10 billion dollars of highly liquid crypto assets to ensure that it stays pegged to 1 USD. The mechanism behind this stablecoin is a simple mint and burn policy involving TRX, the main token of the Tron blockchain. If the value of USDD goes lower than 1, users can send 1 USDD and receive 1 USD in TRX, if the value is higher users can send 1 USD worth of TRX and receive 1 USDD. Like Terra this system sustains itself on arbitrage opportunities.
Tron main token, TRX, can also benefit from this system, TRX is burned everyday in a system that the transaction fees on the Tron blockchain are always burned. USDD will add another layer to this burning system since TRX can be burned to mint USDD.
The main feature of this stablecoin for users is that it will give a 30% APY. This is a huge APY and can make investors look at Tron as an investment opportunity. This type of APY isn't sustainable on the long term, like UST on Terra, the APY might drop has the time passes. Normally the first users of this systems are the ones who benefit from it the most.
The catch with this stablecoin is the same with all Tron projects, Justin Sun is behind the project and he is a very controversial character on the blockchain industry. Although the project will be handled by TRON DAO, Justin Sun is always the first person that comes to mind when talking about Tron, and in fact it was him who announced this stablecoin project and of course he has his vote on the TRON DAO aswell. Although he already announced that he is leaving Tron to the community, the image of Tron will always be associated with Justin Sun.
There's also always a risk when investing in DeFi and decentralized stablecoin systems, hacks are always a problem but this is a problem with every blockchain. There's also the risk of the stablecoin losing the peg to the USD, that shouldn't happen but it's always a risk to consider. The first thing to do before investing is always be aware of the risks and invest only what you can afford to lose.
USDD is a great way to improve the Tron ecosystem and bring more investors, we will see how this launch will go and be here to review its launch and its first days.
Best Regards,
Cryptopeach