TRON offers 30% interest rates on USDD stablecoin. What could go wrong?
Justin Sun, Tron’s creator, announced today via Twitter that traders will now be able to earn rewards for depositing USDD, an algorithmic stablecoin, into the Tron-based lending platform JustLend.
They’ll get yield in USDD and JUST when they deposit USDD.
JustLend is a lending program on Tron, similar to Compound and Ethereum. Compound offers APY rates in the single digits. JustLend advertises rates as high as 30%. JUST however pointed out 70% earnings and the rate has been adjusting all day. (Tron representatives are yet to respond to a Decrypt request for comment about how the yield works. This is about 10-20 percentage points higher than Terra’s lending protocol Anchor before the liquidity crisis that caused led to a bank ran and was taken down .
Tron’s move is straight from the Terra playbook, at least the one written before Terra’s native token LUNA or UST stablecoin collapsed.
Sun announced last month that Tron DAO (the ostensibly user controlled organization that makes governance decisions regarding the network) would start issuing a decentralized stablecoin that is backed by TRX.
Sun wrote at the time that USDD’s value was lower than $1 USD. Users and arbitrageurs can send USDD 1 USD to the system and receive USD worth TRX. Users and arbitrageurs who have USDD at a higher price than 1 USD can send 1 USD worth TRX to the system to receive 1 USDD.
This is exactly the same system Terra uses.
Terra’s UST also needed a utility to keep it running. Anchor Protocol provided this utility, which was paid for by Luna Foundation Guard. Terra’s founders set it up to encourage the development of the ecosystem. Anchor offered rewards to people who deposited their UST stablecoins. Users jumped off the tram to redeem their UST for LUNA and created a death spiral that led to the implosion of the entire network and a bigger crypto market crash.
Sun and Tron also have a backup plan, the same one Terra and Kwon had. Tron DAO announced, while Sun was announcing USDD that it had $10 billion of assets to use in a reserve in the event of a financial emergency. This is the same goal Luna Foundation Guard set as its reserve. Terra was unable to raise $3B using a combination Bitcoin, Avalanche and UST. This was not enough to stop the $18 billion stablecoin’s collapse and the $30 billion network token.
From the beginning, Tron and Sun were criticized for being derivative. Many observers noted that Tron’s white paper was very similar to the Ethereum whitepaper. Tron’s 2020 embrace for DeFi had many of the same characteristics as Ethereum’s.
Sun stated that “We are creating a similar kind of DeFi ecosystem to Ethereum” in October 2020. You can view the same version of Tron products in all of the Ethereum network products. The JUST team created the MakerDAO for Tron, called JustStable. UniSwap, on the other hand, is justSwap. (The unnamed team behind JUST also created JustLend.
Tron did not copy Ethereum’s proof of work consensus mechanism, nor its slow speeds. It boasts transactions per second in the thousands. However, its main selling point is that it can do all the same things as Ethereum while being faster and more affordable. It is not clear if it can achieve this while keeping the network more decentralized and without causing security issues.
Its pivot towards Terra’s tokenomics is in line with Terra’s: Like Terra, but better and larger interest rates. Hopefully, without the huge bust at the very end.
Sun has received negative press due to his reported mismanagement of BitTorrent software and Poloniex crypto exchange, both of which he also owns. His copy pasta reputation is still haunting him.
They probably shouldn’t.
Despite being affected by the crypto crash this month, Tron has remained resilient. It is now 14th in market capital among all crypto assets, behind Wrapped Bitcoin with $7.25 billion and Shiba Inu with $7.25 million.
USDD currently has a smaller footprint in the larger crypto ecosystem with only $271 million of circulation. However, it is already surpassing Gemini Dollar since its launch last week.
Terra, the third largest stablecoin was still large enough for it to cause havoc across all assets. Tron will continue its growth spurt, and the USDD experiment is unsuccessful. Sun doesn’t have a good recovery strategy.