on the crypto
tron (quotation TRX) is a $ 6,35 billion cryptocurrency launched by Justin Sun in 2017, ahead of many other popular cryptocurrencies. And while it doesn't have the buzz of cryptocurrencies like Terra or Solana, that doesn't mean it's not innovating and bringing new developments to its ecosystem. Tron made a major announcement last week that a new stablecoin, USDD (which stands for US Decentralized Dollar), will be launched on the Tron network on May 5th.
The news attracted investor interest, and Tron was up 7% following the news, at a time when many other cryptocurrencies are in the red. The launch is expected to attract more users to the Tron network, which will be beneficial for Tron investors.
What is Tron?
Tron is a proof-of-stake delegated blockchain that reached an all-time high of $ 0,29 in January 2018. It has a market cap of $ 6 billion and 88 million user accounts, with 21 million active users in the last month. The Tron network has processed 3,1 billion transactions since its inception. While Tron was founded by Justin Sun, it is now run by the Tron DAO (decentralized autonomous organization), a decentralized community of users and investors that oversees the Tron network.
What is USDD?
Tron's stablecoin will be algorithmically supported in a similar way to the TerraUSD stablecoin (CRYPTO: UST). Fiat-backed stablecoins such as USD Coin (CRYPTO: USDC) are backed by an equivalent dollar amount in the bank. On the other hand, algorithmically backed stablecoins are not backed by physical dollars, but instead use algorithms to balance supply and demand, incentivizing traders to keep the coin's price stable. Here's how it works: If the USDD falls below its $ 1 peg, traders can trade 1 USDD token for $ 1 of Tron. If USDD rises above $ 1, traders can exchange $ 1 of Tron for a USDD. In theory, the maturation of these small but guaranteed returns should mean that high frequency traders and arbitrage traders should be able to keep the USDD price within a tight range around $ 1.
What does this mean for cryptocurrency investors?
TerraUSD's popularity was a turning point for the Terra network and Luna's price. Terra pays a 19,5% annual percentage return (APY) interest on TerraUSD held in its Anchor protocol, which has played a significant role in attracting users to the network. Tron is upping the ante and offering 30% interest on USDD, which is rumored to be launched on May 5th. It is not certain that USDD will supplant TerraUSD or that Tron is even trying to do so (in fact, Terra Do Kwon founder has even expressed his support for Tron's move), but this is likely to attract more cryptocurrency investors to the ecosystem. Tron. Cryptocurrency investors go where interest rates are and a 30% return per year is irresistible. How long this interest will be paid at this level is certainly a question to ask, but at least in the short term this should be a major catalyst for the entire Tron ecosystem.
Sun says USDD will be backed by $ 10 billion of other cryptocurrencies to bolster confidence in its stability, though it's unclear at this time what cryptocurrencies these collateral will be. This is reminiscent of the Earth Guard Moon Foundation working to amass $ 10 billion worth of Bitcoin in order to provide collateral for TerraUSD.
Tron isn't the only cryptocurrency network that's in the process of launching an algorithmic stablecoin. Near Protocol (NEAR) would be preparing to launch its own USN stablecoin in the coming weeks.
Looking at the future
Tron is not a new cryptocurrency and hasn't come close to its all-time high set in 2018 even in the midst of a historic bull market in cryptocurrencies, so I don't expect anything dramatic here. But it's a healthy ecosystem with a substantial user base and a lot of commitment. USDD's launch and its 30% yield should catalyze significant interest among crypto investors going forward. The increased use of USDD will create more demand for Tron. Tron has to gain from this news and both Tron and USDD are likely worthy of a small allocation in cryptocurrency wallets.
