Dubious 20% Returns Offered as Justin Sun’s Unveils USDD 2.0 Stablecoin

The phrase ‘algorithmic stablecoin’ still sends a chill down the spine of most crypto investors after what happened with Terra Luna in 2022. But when that phrase is coupled with a questionable founder telling people to “stop asking me questions” and a too-good-to-be-true yield it’s almost enough to trigger full-blown flashbacks.

That’s precisely the situation with Tron’s soon-to-be-launched new version of its USDD stablecoin, which they’re referring to as USDD 2.0.

Tron founder and CEO, Justin Sun, took to X / Twitter yesterday to announce the updated stablecoin will feature 20 percent staking rewards, which he says will be “fully subsidised by TronDAO”. 

The colourful founder seemed a little annoyed by the community’s ongoing concerns about where this unusually high yield would come from, writing:

All interest will be sent in advance to a transparent address. There’s no other reason—it’s simply because we have plenty of money. So, stop asking me questions like ‘where does the yield come from’.

Justin Sun, Tron founder and CEO

In response, many commenters mocked Sun’s dismissive attitude to investors’ attempts to conduct even the most basic due diligence:

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Why The Concern?

There are plenty of reasons for people to be worried about USDD in addition to the high yield and the founder telling curious investors to shut up.

Firstly, it was launched in 2022 as a direct competitor to everyone’s favourite algorithmic stablecoin, TerraUSD, and it uses a very similar model. In case you need a little reminder, TerraUSD was briefly a darling of the crypto industry before it de-pegged spectacularly in May of 2022 losing US$50 billion (AU$80 billion) in market cap in three days, triggering over US$400 billion (AU$641 billion) in losses across the broader crypto market and resulting in many investors losing their life savings.

Secondly, Justin Sun himself doesn’t have a great record. Among other things, he’s been charged in the US with fraud and manipulating the price of his TRX token through dodgy practices like wash trading.

Thirdly, the stablecoin ratings agency, Bluechip, last year gave USDD its worst rating, slapping it with an ‘F’ grade and labelling it ‘high risk’. The ratings agency said it was particularly unstable for a stablecoin, it also noted that USDD bears many similarities to Terra USD:

USDD is claimed to be an over-collateralized, decentralized stablecoin but it is substantially similar to the failed UST stablecoin (Luna <> UST). Only ~50% of USDD’s supply is backed by non-TRX collateral, nearly all of which is BTC. Stable assets in reserve comprise less than 2% of USDD’s supply.

Bluechip analysis of USDD

As Bluechip points out, unlike dollar-backed stablecoins such as USDC, USDD is backed almost entirely by volatile assets like Tron’s TRX token and Bitcoin — this makes the stablecoin itself inherently less stable and more prone to a TerraUSD-style collapse.

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At the time of writing, USDD only makes up a tiny fraction of the overall stablecoin market cap at just US$745 million (AU$1.2 billion), the biggest players Tether (USDT) and USD Coin (USDC) dominate the market with market caps of US$137 billion (AU$220.6 billion) and US$46 billion (AU$74.1 billion) respectively, according to data from CoinGecko.