USSD Stablecoin Dips Below $1 Peg - Is this a Terra Meltdown 2.0?

A contentious algorithmic stablecoin has dipped below its one-dollar peg, stoking similarities with the crash of terraUSD, which also struggled to keep its value to the U.S. dollar.

On Sunday, June 19, CNBC reported that USDD, which is always supposed to be worth $1, fell as low as 93 cents. The crypto coin's developer has to accumulate a reserve of bitcoin and several digital tokens worth nearly $2 billion to create a safety net in the instance that investors abandon the coin in droves.

Concerns have been raised that USDD would share the same fate as terraUSD, also known as UST, and an experiment called Terra.

Terra's meltdown spurred a broader sell-off in cryptocurrencies that was only worsened in recent weeks due to a rising liquidity problem in the market.

Is USDD's Dip a Terra Meltdown 2.0?

The Tron DAO Reserve, which controls and handles the stablecoin, said a reasonable amount of fluctuation in USDD's value was expected due to its "decentralized" structure.

The reserve explained in a tweet last week that a specific volatility percentage is inevitable. They noted that present market volatility is "within +-3%," which is considered a reasonable range.

However, they also said that they will keep an eye on the market "very closely and act accordingly."

CNBC reported that the USSD was priced at about 97 cents as of Wednesday.

Although worries arise that the Terra scenario will repeat itself, experts think this is far-fetched to happen because USDD is significantly smaller in scale and has received minimal interest from cryptocurrency investors.

Early in May, just as UST started to fall below $1, USDD was introduced. However, in the past week, it has constantly fallen from its targeted dollar peg in the midst of rising sales.

According to CNBC, rather than resting on wads of cash and other cash-related assets, USDD operates a complicated algorithm that is paired with a linked token called "tron" to preserve a one-to-one peg to the greenback.

USDD's case is quite similar to Terra's crash since its UST functioned in a manner that generated and destroyed units of UST and its sister coin luna to avoid the requirement of having reserves to keep the stablecoin afloat.

Additionally, investors can earn uncommonly high-interest interest rates on their USDD investments of up to 39%. Similar rates of up to 20% on UST holdings were advertised by Anchor, a cryptocurrency lending platform.

USSD was created by Justin Sun, the developer of blockchain Tron that is seeking to challenge Ethereum.

This article is owned by Tech Times

Written by Joaquin Victor Tacla