Analysts unsettled by activity around the stablecoin USDD

The hedge fund Oapital, which profited from the collapse of UST from Terra, began making large transfers into USDD and other stablecoins. This drew the attention of analysts at Nansen.

Oapital (labelled on @nansen_ai), one of the funds involved in capitalising off of the $UST de-peg is now actively making large transfers of $USDD and other stables.

Doesn’t look great. pic.twitter.com/DBoubXoWvu

— Nansen Intern 🧭 (@nansen_intern) June 13, 2022

“Doesn’t look great,” commented the experts.

On June 13, amid a market downturn, the TRON team’s algorithmic stablecoin briefly lost its peg to the dollar in the United States. The asset’s price fell to $0.97. At the time of writing, the “stablecoin” is trading at around $0.99 (CoinGecko).

On June 12, an analyst going by the handle Res noted that TRON DAO Reserve is converting reserves of USDD from the stablecoin into volatile Bitcoin and the network’s native token, TRX.

5/ Even though the 100M USDT are used to buy even more $BTC & $TRX, what they are doing is to sell their stables to buy volatile assets

If $BTC & $TRX keep dropping in price while $USDD supply increases, the risk of higher undercollateralization becomes even more worrisome

— Res ®️ (@resdegen) June 12, 2022

“If BTC and TRX continue to fall in price while USDD supply increases, the risk of undercollateralization will rise,” he said.

The expert also noted that, in addition, the TRON team lowered the annual percentage yield (APY) on deposits in the stablecoin from 30% to 10.9%.

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

“If you remember, the UST problems started when Anchor introduced dynamic rates, and the APY fell from 19.5% to 18%,” wrote Res.

On June 13, TRON DAO Reserve received 700 million USDC to back the USDD peg to the dollar.

For the market extreme condition, @trondaoreserve has received 700 million USDC to defend #USDD peg. Now USDD collateralization rate is nearly 300%. https://t.co/ULYBfjt2i0

— TRON DAO Reserve (@trondaoreserve) June 13, 2022

As of writing, the stablecoin is backed by reserves equal to 279% of its issuance. However, Res argues that TRX and USDT are incorrectly counted among the reserves. Tether coins are locked in the JustLend lending smart contract and are subject to exploitation risk, the analyst says.

In April, TRON Foundation head Justin Sun announced the launch of USDD. On May 10, TRON DAO Reserve began building reserves to support the coin.

In June, Sun said developers intended to maintain USDD overcollateralization at no less than 130% of total issuance. According to him, the team has learned a lesson from the collapse of UST.