TL;DR
- Tron withdrew $750 million worth of Bitcoin from USDD backing.
- Justin Sun claimed the withdrawal was due to overcollateralization of the stablecoin.
- Critics point to a lack of transparency and centralization in USDD governance.
Tron founder Justin Sun has addressed concerns following the withdrawal of nearly $750 million in Bitcoin reserves backing the stablecoin USDD.
The move has raised concerns about the stability of the stablecoin, which is now primarily backed by Tron‘s TRX token rather than Bitcoin.
Sun explained that the withdrawal was due to overcollateralization of USDD, which had reached over 300%, thus allowing the withdrawal of excess collateral without the need for approval, a design inspired by MakerDAO‘s system for DAI.
Regarding the decentralized stablecoin USDD, its mechanism is similar to MakerDAO's DAI and is not mysterious. When your collateral exceeds the amount specified by the system (usually between 120%-150% depending on the vault), any collateral holder can withdraw any amount freely…
— H.E. Justin Sun 孙宇晨(hiring) (@justinsuntron) August 22, 2024
Despite Sun’s clarifications, the move has reignited debate over USDD governance and the central role he plays in it.
Although USDD is technically governed by a DAO (Decentralized Autonomous Organization), decision-making has been perceived as highly centralized, with minimal community involvement.
This perception was compounded when Sun announced the withdrawal of Bitcoin from his personal account, rather than through the official Tron DAO Reserve channels.
USDD remains one of the top stablecoins by market cap, with approximately $744 million in circulation, currently backed by $1.7 billion in TRX and USDT.
However, stablecoin rating agency Bluechip has questioned the true collateralization ratio of USDD, suggesting it could be much lower than officially claimed, reaching just 53% due to the transfer of reserves to Huobi and the use of a multi-sig wallet.
Concerns about USDD transparency and governance
Criticism of USDD has focused primarily on the lack of transparency and the way the reserves backing the stablecoin are managed.
Despite Sun’s efforts to reassure users, skepticism among investors persists. The fact that such important decisions are communicated through personal channels rather than official ones has increased the feeling that the stablecoin governance process is not as decentralized as expected.
Furthermore, the apparent discrepancy in collateralization levels, noted by Bluechip, has called into question the security of USDD backing. The possibility that actual collateral is significantly lower than reported has raised concerns about the long-term viability of the stablecoin.
In this context, many users and analysts are closely watching how the situation is handled and whether Tron will take steps to improve transparency and community participation in decision-making. The future of USDD could largely depend on how these key issues are resolved in the coming months.
Finally, the current situation underscores the importance of trust and clarity in handling stablecoins, especially in an environment where user trust is critical to the success of any digital asset.
