- TRON’s DeFi ecosystem is skyrocketing. This is currently the third largest blockchain in terms of total value locked, following only Ethereum and BNB chains.
- This surge could be due to the new algorithm Stablecoin USDD, which has swelled to $ 545 million with a promise of a 30% “risk-free” yield.
- TRON’s USDD employs a stabilization mechanism similar to Terra’s UST stablecoin, which was hit by a $ 40 billion death spiral earlier this month.
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Less than a month after launching USDD, an algorithm stablecoin that uses a mechanism similar to Terra’s collapsed UST, TRON is the third largest block in total locked by the DeFi protocol. It became a chain.
TRON will be the third largest DeFi ecosystem
TRON’s DeFi ecosystem benefits from the new high-yielding stablecoin.
Despite the relatively volatile market conditions pervading the DeFi sector after the collapse of Terra earlier this month, TRON’s decentralized application ecosystem thrives at least in terms of total value locking. I am.
For each data from Defirama, TRON’s DeFi ecosystem has grown about 26% in the past month and has grown from about $ 4 billion to $ 5.38 billion today. It outperformed other popular Layer 1 networks such as Avalanche and Solana, making it the third largest blockchain in total locked, after Ethereum and the BNB chain.Aggregate for comparison DeFi sector Losing about $ 90 billion in liquidity in the past month alone, most major blockchains have plunged 30-70% in locked value after the collapse of Terra.
The most likely reason for the TRON ecosystem’s surge is the rapid growth of the recently launched stablecoin, USDD. I promised Investors have a “risk-free” 30% interest rate.According to that White paper, USDD is designed to be a “cryptocurrency issued by TRONDAO Reserve at a stable price” with “embedded incentive mechanism and rapid monetary policy”. Assets are said to be “self-stabilizing against price fluctuations” by this mechanism, just as they intended to stabilize the UST before Terra’s LUNA tokens and Bitcoin reserves collapsed. I am.
The white paper shows an impressive similarity between USDD and Terra’s UST. If the USDD trades for less than $ 1, the arbitrator can burn it with TRX, TRON’s native cryptocurrency worth $ 1. Conversely, if USDD trades above $ 1, the arbitrator can exchange $ 1 worth of TRX for one USDD, mint more USDD in the process and increase its supply. .. In theory, this mechanism helps ensure that the price returns to the desired $ 1 peg.
Similar to Terraform Lab’s plan to raise $ 10 billion in Bitcoin to protect UST pegs in the midst of unusual market volatility, the TRON Foundation has created a TRON DAO Reserve with the same goal: USDD. Raising $ 10 billion to protect the pegs.
? @usddnetwork We provide $ 10 billion worth of liquid asset custody services raised from blockchain industry initiators and use them as an early stage reserve.
— HE Justin Sun ???? (@justinsuntron) April 21, 2022
Justin Sun, the controversial founder of the network, has motivated users to create and bet stablecoins on various DeFi applications on TRON. promised 30% “risk-free” interest rate on USDD. It’s unclear where this yield comes from, but the recent surge in TRON’s DeFi ecosystem suggests that the incentive mechanism is working. Since its launch on May 2, USDD has grown exponentially, reaching a market capitalization of approximately $ 545 million. Most of the USDD supply is locked by various DeFi protocols on the TRON network. Most of them are finding a way to various DeFi protocols on the Tron network.
While the launch of USDD has supported TRON over the past few weeks, USDD’s official “custodian” TRON DAO Reserve has taken risks associated with the new algorithm Stablecoin everywhere in official documents and public communications. It is worth noting that it could not be emphasized. .. After all, USDD acts like Terra’s UST, ending with a $ 40 billion death spiral event. In Terra’s collapse, when UST began to lose its peg to the dollar, it exceeded LUNA’s market capitalization, indicating that the spiral of death was in motion. As USDD continues to grow at this pace, it could quickly exceed TRX’s $ 7.74 billion market capitalization. Since TRX is supposed to support USDD, Stablecoin follows the same fate as UST and can cause another wipeout across the industry.
Disclosure: At the time of writing this, the author of this work owned ETH and several other cryptocurrencies.