On May 5, 2022, USD Digital (USDD) was launched as a stablecoin. USDD is governed by the TRON DAO Reserve and is available on the TRON, Ethereum, and BNB Chain blockchains. It is pegged to the U.S. dollar at a 1:1 ratio, meaning that 1 USDD is always expected to be equal to 1 U.S. dollar.
Stablecoins like USDD rely on algorithms to maintain their stability through a process called seigniorage shares. Seigniorage shares are created when new coins are minted and destroyed when coins are burned. The supply of these shares is managed to increase when the price of the stablecoin falls and decrease when the price of the stablecoin rises. This helps to regulate the supply-demand ratio and keep the price of the stablecoin pegged to a stable value, even though it is not backed by any collateral.
USDD, as an algorithmically-based stablecoin, faces a unique situation following the collapse of terraUSD (UST). However, USDD’s collateralization is slightly different from UST’s, as it is backed by a basket of assets including TRX, BTC, and USDC, which together account for more than 200% of the value of USDD in circulation. This means that each USDD in circulation is actually backed by more than twice its value. In addition, the mint-and-burn mechanism allows users to burn 1 USDD for 1 USD worth of TRX when the price of USDD is lower than 1 USD, and to burn 1 USD of TRX for 1 USDD when the price of USDD is higher than 1 USD. This helps to keep USDD pegged to the USD at a 1:1 ratio and prevent USDD from de-pegging.