Justin Sun Addresses Concerns Over Removal of Bitcoin Collateral from Decentralized USD

Recent developments surrounding Tron’s Decentralized USD (USDD) have sparked significant debate in the crypto community. On August 19, a substantial amount of Bitcoin—12,000 BTC, valued at over $729 million—was removed from an address previously listed as collateral for USDD. This move has led to speculation and concerns about the stability and governance of the stablecoin, with some accusing Tron founder Justin Sun of being behind the transaction.

Justin Sun’s Response to Criticism

In response to the uproar, Justin Sun has sought to calm concerns, stating that the removal of Bitcoin is a standard procedure within the decentralized finance (DeFi) framework. Sun explained via X on August 22 that USDD’s collateral mechanism is akin to MakerDAO’s DAI, which allows for the withdrawal of collateral without explicit approval as long as the collateralization ratio exceeds a certain threshold.

Sun emphasized that USDD maintains a long-term collateralization rate exceeding 300%, suggesting that the stablecoin’s capital utilization remains robust and efficient despite the Bitcoin removal. He described the mechanism as fundamental to DeFi and not unique to USDD.

The Bitcoin address in question has since been removed from USDD’s transparency page. Currently, the stablecoin is primarily backed by Tether (USDT) and Tron (TRX). The transparency page now lists over 744 million USDD in circulation, with reserves amounting to $1.7 billion in TRX and USDT, which translates to a collateralization ratio of over 230%.

This collateral ratio is notably higher than that of other stablecoins like Dai (DAI), which is 120% collateralized, and USDT and CircleUSD (USDC), which are both 100% collateralized.

Market Reaction and Stability

The removal of Bitcoin from USDD’s reserves has raised questions about the stablecoin stability. USDD, launched in 2022 as a competitor to the now-defunct TerraUSD (UST), aims to maintain a value pegged to the US dollar. Despite this, USDD has faced volatility, reaching an all-time low of $0.92 on March 11, 2023.

In the wake of these events, Sun’s assurance about the stability of USDD and its collateralization ratio seeks to address investor concerns. However, the incident highlights ongoing challenges and scrutiny faced by DeFi projects as they navigate the complexities of collateral management and governance.