USDD: a Tron-backed stablecoin

USDD (USD Decentralized) is one of the more recent stablecoins that was released in 2022, much later than USDT, USDC, and even DAI. It's boasted as a truly decentralized, algorithm-based stablecoin created on the TRON blockchain. USDD is currently on the rise, assessed as the 47th cryptocurrency by market cap on the market.

It's designed in a slightly different way than regular stablecoins, and this attracts both interest and apprehension. While USDT and USDC have been reliably stable throughout their long tenures, USDD hasn't really been so lucky. Its structure is still remarkable, with many unique advantages. But is it so stable?

Defining stablecoins

Stablecoins are a special type of cryptocurrencies.

They are created as a blend of blockchain technology and regular fiat money. Their value is always equivalent to that of their pegged fiat currency. In essence, it's the fiat currencies (USD, EUR, etc.) created on a blockchain through a variety of means. They can be collateralized or maintained on a necessary level algorithmically.

Their main purpose is to provide a source of liquidity and decreased volatility on the market. They can act as a stabilizing agent in a portfolio, a strategic reserve, or often a legal tender in many online decentralized businesses. All in all, stablecoins act as regular money on the blockchain.

They have a much decreased potential for profit-making, although there are nowadays solutions and services that enable passive income from stablecoins. However, Bitcoin, Ethereum, and similar coins remain the main source of speculative revenue, while stablecoins have specialized applications.

Common stablecoins and how they operate

There are several key stablecoins of note, released over the years on various blockchains and then re-released on others. These are:

• USDT. The most popular stablecoin and one of the most valued tokens at the moment. Originally released in 2014 on the Bitcoin blockchain, it was the first stablecoin in history. It was then moved to many other blockchains.
• USDC. The second-most popular stablecoin and also one of the top-5 cryptocurrencies at any given moment. It was originally released in 2018 on Ethereum before USDT entered this market. USDC is still by far the most common stablecoin on Ethereum and one of the most prominent currencies there.
• DAI. Another, even earlier ETH-based stablecoin, was released in 2017. It's less popular, owing to its more complex structure and harder adoption. It's an algorithmic stablecoin, which maintains its value through a collection of collateral digital assets and smart contracts.

Collateralized, pegged stablecoins are really a simple concept. Currencies like USDC or USDT are pretty centralized by the margins of blockchain. For each minted USDT or USDC, a dollar is added to the common treasure. As such, there's never a token not backed by an actual dollar.

Algorithmic stablecoins aren't collateralized necessarily by USD. Like DAI, which is backed by a multitude of various crypto assets, algorithmic stablecoins try to match the value of USD at any given moment without actually relying on it. In it, they are helped by a group of complex smart contracts. In this way, it's possible to mint new stablecoins much easier.

USDD defined

USDD is an algorithmic stablecoin released on the TRON blockchain.

It's collateralized by several major cryptocurrencies, which largely include TRX (Tron's token), a smaller amount of USDC, and an even smaller amount of BTC. You're still talking about millions of dollars stored in these currencies, though. The market cap of USDD is now >$700,000,000.

This pool of cryptocurrencies is supposed to maintain the continuous price of USDD at exactly 1 USD. It's not always the case, but the value is overall similar to USD, within the 3% margin of error. As such, the smart contracts do their job well. It is a complex, decentralized job.

USDD is managed by the TRON DAO, which means that it's closely aligned with the larger TRON blockchain. The success of USDD also means an increased success of TRX, seeing how the former is made possible through the collateralization of the latter. It's possible to mint new USDD if you collect enough BTC, ETH, and TRX. In this sense, USDD is superior to USDT and USDC, although it's not nearly as widely spread.

The way these smart contracts achieve the constant value of USDD is by constantly rearranging its collateral assets to fit the current value of the American dollar. There is always more collateral than is necessary at a given moment. That is why it's called over-collateralized. When the need arises, smart contracts move in more of one asset and withdraw some of the other.

Is USDD good?

The thing about algorithmic stablecoins is that they aren't as one-dimensionally reliable as their non-algorithmic counterparts. The processes that happen inside these smart contracts can't be fully understood by the larger public, which is why there's an inherently lower degree of transparency.

The main concern about USDD is its actual traceable volatility. It's not volatile in the same sense Bitcoin or Ethereum are volatile. Its lowest-ever price has been $0.95 in mid-June 2022. Since then, it has seen more dips than is customary for a stablecoin, but never larger than a few pennies deep.

In a wider scheme of things, USDD is just as effective as more popular stablecoins. There's fear that USDD will flop because stablecoins are capable of flopping if handled improperly or fraudulently (as occurred with UST). However, it doesn't seem to be the case with USDD yet.

Conclusion

All in all, though, there are plenty of reasons to use this token in the wild. USDT and USDC are both TRON-compatible, which makes them basically a legal tender on this blockchain. However, they aren't truly centralized. USDD is a decentralized token, which gives more power and control over it to an everyday user.

So, whether to use it or not is really a preferential matter. Do you value reliability over control? Or is it the other way around?