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Decentralized USD (USDD) fell to as low as 91 cents on crypto exchanges early Monday and was changing hands around 99 cents at press time.

The Tron network’s stablecoin, USDD, lost its peg to the U.S. dollar on Monday, dipping to as low as 91 cents, as crypto markets nosedived as investors grew increasingly concerned about persistently high inflation, tightening financial conditions and a potential recession.

Tron founder Justin Sun tweeted Monday that the funding rate on the Binance exchange for betting against, or “shorting,” the Tron blockchain’s native TRX token stood at negative 500%, a whopping rate that suggests many investors are clamoring to get into that trade. According to Sun, TronDAO “will deploy $2 billion to fight them.”

TronDAO said in a tweet that it added $650 million of USDC to its reserve.

Decentralized USD (USDD) is an algorithmic stablecoin on Tron, a multipurpose smart contract blockchain, which is supposed to keep a one-to-one exchange rate to the U.S. dollar. It relies on an elaborate, automated balancing mechanism that involves alternately creating and destroying units of USDD and TRX.

It is also collateralized by holding cryptocurrencies, such as TRX, bitcoin (BTC) and other stablecoins, including Tether’s USDT and Circle’s USDC, in a standby fund known as the TronDAO reserve.

Its design is eerily similar to Terra’s stablecoin, UST, which lost its price peg and eventually imploded a month ago, wiping out $40 billion in market value.

Cryptocurrencies dropped sharply on Monday as Celsius, a crypto lender, announced that it suspended all withdrawals and transactions to prevent a run on deposits. It is the latest sign of a liquidity crisis in crypto, driven by a worsening economic environment around the globe and central banks hiking interest rates and draining excess liquidity from the financial system in an attempt to fight persistently high inflation.

USDD fell to as low as 91 cents Monday morning on the crypto exchange KuCoin, indicating a 9% drop from its supposed peg, according to TradingView.

CoinDesk - Unknown
Decentralized USD (USDD) dropped to as low as 91 cents in the early hours of Monday. (TradingView)

According to the official TronDAO website, USDD’s collateral stands at $2 billion, while USDD’s supply in circulation is $723 million, suggesting that it holds enough capital to prop up the stablecoin by using reserves to buy USDD.

At press time, USDD was changing hands around 99 cents but still had not recovered its dollar peg. TRX, the twin token of the stablecoin, dropped 17% in the last 24 hours.

Source: coindesk.com

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