Justin Sun and the removal of 12,000 Bitcoin from the USDD collateral: now the coin is 100% backed by TRX

Unexpectedly, yesterday Justin Sun removed as many as 12,000 Bitcoin, equivalent to 735 million dollars, from the reserve collateral of the stablecoin USDD.

Justin Sun, the billionaire founder of the Tron ecosystem, has sparked concerns within the community after removing 12,000 bitcoin from the reserves of the stablecoin USDD.

The coins, valued at around $735 million, were present as a guarantee to cover any potential risks of depeg and to contribute to the price stability of the cryptocurrency.

However, according to Tron DAO Reserve, the coins have been shifted into HTX, leaving a small portion in USDT.

The total supply of USDD stands at around 745 million, with a collateral value of $1.723 billion. Of this, nearly 98.8% is backed by TRX, to the tune of 10.93 million.

What has raised eyebrows is the fact that Justin Sun seems to have acted without the authorization of the governance of the USDD protocol.

The last and only question that was raised in the past, according to the project’s governance page, pertained to the topic of token burn in May 2023.

Currently, USDD has a market capitalization of $744 million, fully backed by TRX and USDT at a ratio of over 230%. The total value of the reserves is $1.7 billion.

At present, there are no risks of a loss of the peg. However, things could turn sour if the value of the collateral falls below the total value of USDD.

For a bank run to be triggered, similar to the one observed with UST in 2022 (the stablecoin of the Terra/Luna ecosystem), TRX would need to fall below $0.067. At the time of writing, it is valued at $0.155.

The move comes as part of Justin Sun's broader efforts to bolster the TRX ecosystem and to enhance the role of his own chain.

As the chain witnesses a surge in popularity, largely driven by the SunPump protocol that has facilitated speculations in memecoins, TRX has also enjoyed a 15% uptick in the past week.

Among the stablecoins, USDD ranks 7th in terms of circulating supply, with 744 million tokens, following PYUSD, FDUSD, USDe, DAI, USDC, and USDT.

Despite the popularity of USDD, its vulnerability remains apparent, which could lead to a potential collapse if it loses the peg.

As highlighted by the founder of the Ducat Protocol, in a depeg condition, an arbitrage opportunity would be created that traders would inevitably exploit to generate profits.

With USDD trading below $1, users would be incentivized to borrow the stablecoin and convert it on-chain for USDT and USDC.

This mechanism could be repeated indefinitely, accompanied by the creation of short positions against TRX to further drive down the peg.

This strategy, ultimately, played out during the UST crash in May 2022.

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