The Year of the Algo
Market Meditations | April 22, 2022
Since the creation of USDT, FUD has filled the headlines, creating doubt in the minds of investors about the backing of the stablecoin. This led to the idea of algorithmic stablecoins. As opposed to trusting a private company, users could trust code. It took a while to catch on, but when it did UST, one of the first successful algorithmic stablecoins, grew like wildfire and was implemented on various chains. UST has enjoyed so much success, that algo stablecoins are popping up everywhere including the TRON network.
- Justin Sun recently announced that Tron will be launching its own algo stablecoin native to the TRON network.
- TRX, the TRON token will be used to keep USDD pegged to the US Dollar. Anytime that the peg of USDD falls below one dollar, users can send $1 worth of USDD to the system in exchange for $1 worth of TRX. If the price is above $1, users can send $1 worth of TRX in exchange for $1 worth of USDD.
- The stablecoin will be managed by the TRON DAO.
- The TRON DAO will also maintain custody of $10 billion of “a highly liquid” reserve asset and offer an interest rate of 30%.
- If this all sounds eerily familiar, that is because it is not so dissimilar to Terra’s algorithmic stablecoin UST. Do Kwon seemed to approve, tweeting about Sun’s announcement and saying that ‘decentralized communities deserved decentralized money.’
FRAX recently gained traction and headlines after the creation of the 4pool containing USDT, USDC, UST & FRAX. Even NEAR protocol is launching an algo stablecoin but many investors are still skeptical about the ability of these algo stablecoins to maintain their peg and worry that a real bank run could crash the market. More about NEAR in the next section…