USDD fell to as low as below 97 cents on multiple crypto exchanges Wednesday after it deviated from a supposed 1:1 exchange rate with the U.S. dollar a day before.
The USDD liquidity pool on the decentralized finance protocol Curve, where users can trade USDD for other stablecoins such as USDT, USDC and DAI, is heavily imbalanced, with USDD accounting for almost 80% of assets in the pool. This imbalance suggests that more investors want to sell USDD than buy, putting downward pressure on USDD's price. The USDD exchange rate for other stablecoins was most recently around 98.5 cents.
A Tron spokesperson told CoinDesk they don't consider the recent decline a depeg, as Tron DAO set the acceptable level of fluctuation in USDD's price to 3% under extremely volatile market conditions.
USDD is the native stablecoin of the Tron blockchain with a $725 million market capitalization. It is designed to keep its price stable at $1, supported by a combination of trading incentives and the storage of more crypto assets in the Tron DAO Reserve than USDD's total value. It was started in May, around the time Terra network's USTC stablecoin lost its dollar peg, igniting a full-blown crisis in the broader digital asset market.
Stablecoin prices depegging from their supposed exchange rate is a tell-tale sign of a liquidity crisis in the crypto market. In May and June, several stablecoins lost their pegs while crypto firms such as Three Arrows Capital, Voyager Digital and Celsius Network faced insolvencies. USDD also dropped to 96 cents in June, according to data on cryptocurrency price tracker CoinGecko.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.