Stablecoin USDD issued by Justin Sun gradually lost its peg during the FTX instability.
The failure of the cryptocurrency exchange FTX, the trading business Alameda Research, and the news of the hundreds of other enterprises exposed to their collapse have diverted attention away from a few projects that are struggling. Consider the "algorithmic" stablecoin personally owned by Justin Sun and known as USDD.
On November 6 and 7, the functionality of FTX withdrawals was terminated. Two days later, news of some sort broke regarding the USDD. On November 9, the price experienced a momentary surge to $1.01 before it started to fall.
The USDD deviated from its $1 peg and reached a low of $0.97 before recovering. On November 14 — precisely one month ago — the stablecoin successfully maintained its guaranteed peg for the last time. So, what exactly is the issue?
USDD stablecoin is neither algorithmic nor a stablecoin as first thought. The most recent version of the whitepaper (1) provides new information about the possibility of exchanging USDD for other stablecoins, such as Tether (USDT) and USD currency (USDC).
Nevertheless, it also promises that the Tron DAO Reserve is equipped with a mechanism to guarantee that the asset will continue to be tied to the dollar. It is abundantly clear that this process did not work.
It is important to note that the Tron DAO Reserve is now offering "risk-free" rewards on staking of approximately 50%, which is both a staggering and alarming ratio.
At the beginning of this year, Sam Bankman-Fried tried to dissociate himself and his company, Alameda Research, from trading in USD. The coin, however, was listed on several other FTX trading platforms. Alameda probably participated in the Foreign Exchange market as a market maker for the USD.
USDD is still unable to regain its peg despite a massive increase in volume during the previous week and the fact that there is no real way (or incentive) to short the 57th largest cryptocurrency. This suggests that the issue does not lie within the scope of short-sellers or market manipulation.
There are rumors that Sun purchased the cryptocurrency exchange Huobi in October of this year through an investment scheme known as About Capital Management. Huobi is the platform that hosts the biggest market for USDD.
Alongside Sun, its manager Ted Chen has become (2) one of the board of directors at Huobi. It is interesting to note that Leah Wald, a member of the Huobi board of directors, also serves as the chief executive officer of Valkyrie Investments, another fund in which Sun has invested.
It would appear that Justin Sun is the one with the most interest in seeing his stablecoin succeed. Is there any chance that this will be enough to save his "algorithmic stablecoin"?