Last updated on November 17th, 2022 at 01:49 pm
TRON has surpassed Terra as the third-largest blockchain in terms of total value in its DeFi protocols. This happened less than a month after TRON launched USDD, an algorithmic stablecoin that works similarly to Terra’s now-defunct UST.
TRON’s DeFi ecosystem is gaining traction thanks to a new high-yielding stablecoin.
TRON’s network of decentralized applications is booming, at least in terms of total value locked, despite the rather fragile market conditions pervading the DeFi sector following Terra’s collapse earlier this month.
TRON’s DeFi ecosystem surged by around 26% last month, increasing from about $4 billion to $5.38 billion today, according to data from Defi Llama.
The surge in TRON’s ecosystem may be due to the rapid growth of its stablecoin (USDD) that was recently launched, which guarantees investors a “risk-free” 30 percent interest rate.
According to its whitepaper, USDD is a “cryptocurrency created by the TRON DAO Reserve with a steady price” with a “built-in incentive system and a responsive monetary policy.” This system is supposed to allow the asset to “self-stabilize against any price swings,” just like how Bitcoin reserves and Terra’s LUNA token were supposed to stabilize UST before it collapsed.
As contained in the whitepaper, USDD and Terra’s UST have a lot in common. Arbitrageurs can burn USDD for TRX when it falls below $1. Also, arbitrageurs can swap $1 worth of TRX for one USDD when USDD trades over $1, thereby minting an extra USDD and boosting its supply. This process, in theory, ensures that the coin’s price returns to the $1 mark.
The TRON Foundation created the TRON DAO Reserve for the same reason that Terraform Labs wants to raise $10 billion in Bitcoin: to protect the UST’s peg in a market that has never been so volatile.
Justin Sun, the network’s controversial founder, has pledged a 30 percent “risk-free” interest rate on USDD to encourage users to mint and stake the stablecoin across multiple DeFi applications on TRON. While the source of this yield is unknown, the recent growth in TRON’s DeFi ecosystem implies that the incentive mechanism is in place. USDD has expanded exponentially since its launch on May 2, achieving a market valuation of $545 million. The majority of the USD supply is locked in multiple TRON DeFi protocols.
While the debut of the USDD has aided TRON in recent weeks, it should be noted that the TRON DAO Reserve has failed to mention any of the hazards connected to its new algorithmic stablecoin anywhere in its official or public communications. After all, USDD works similarly to Terra’s UST, which ended in a $40 billion death spiral.
When Terra’s link to the dollar began to erode, UST’s market cap topped that of LUNA, signifying the start of the death spiral. USDD may eventually surpass TRX’s $7.74 billion market valuation if it continues to expand at this rate. Since TRX is supposed to be backed by USD, the stablecoin may suffer the same fate as UST, which would wipe out the whole industry.
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