Tron is launching a decentralized algorithmic stablecoin called USDD

Tron founder Justin Sun announced on Thursday. Stablecoins won’t behave like traditional currencies, such as Circle’s Tether (USDT) and USD Coin (USDC), keeping dollars (and other assets) in a bank account as a backstop. Instead, USDD will be an algorithmic stablecoin like TerraUSD (UST) and Frax Finance (FRAX).

Justin Sun to launch algorithmic stablecoin USDD on Tron

The stablecoins will have a system similar to these algorithmically stablecoins to keep their rate to the US dollar. “When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralized system and receive 1 USDD”, Sun explained.

The Tron founder claims that USDD’s algorithm will ensure that stablecoin maintains its US dollar rate regardless of market conditions. A decentralized autonomous organization (DAO) called the Tron DAO would manage the blockchain’s stablecoin. According to Sun, Tron DAO will manage a reserve with an interest rate of 30%.

Tron DAO will also provide custodial reserves of up to $10 billion in highly liquid assets as collateral backing USDD. This is similar to Terraform Labs founder and CEO Do Kwon’s plan to buy $10 billion in Bitcoin as a reserve for UST.

Sun did not specify which assets it would use as collateral but said they would be “highly liquid assets raised from initiators of the blockchain industry.” The assets will be used as a reserve to help keep the stablecoin pegged to the US dollar.

Kwon responded favorably to Tron’s stablecoin announcement. “Decentralized economies deserve decentralized money,” he said. He further stated that every blockchain would soon run on these decentralized stable currencies.

According to Sun’s announcement, USDD will be available on Ethereum and BNB Chain when launched via the BitTorrent network’s cross-chain protocol.

Justifying the need for a native stablecoin on Tron, Sun explained that the expansion of USDT trading volume on the network signals the need for USDD. Stablecoins have previously gained popularity online from traders looking to exploit arbitrage opportunities without overpaying for transaction fees.

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