State of USDD Q1 2023

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Key Insights

• Despite falling transaction volume of USDD, the number of holders consistently remained above 130,000 in Q1’23.
• The on-chain stablecoin reserves for USDD have now been entirely removed, leaving only BTC and TRX deposits to back the stablecoin. The non-TRX on-chain collateral ratio is 0.55, and the collateral ratio including TRX is 1.54.
• Despite a more volatile quarter for most stablecoins, USDD actually had one of its least volatile quarters. However, it continued to trade below peg and ended the quarter making up 79% of the USDD/3CRV pool on Curve.

Primer on USDD

USDD is an overcollateralized stablecoin issued by the TRON DAO Reserve (TDR), which is also the custodian. The TDR is made up of seven crypto-native institutions. USDD’s value is backed by the overcollateralization of crypto assets under the TDR, including BTC, USDT, USDC, and TRX. The peg is maintained through the Peg Stability Module (PSM), which allows 1:1 transfer of USDD for USDT, USDC, TUSD, and USDJ. The PSM’s USDD funding is controlled by the TRON DAO Reserve. USDD can be minted by the whitelisted institutions of the TDR by depositing TRX.

Key Metrics

Performance Analysis

USDD Supply and TRX Deposit

USDD supply was flat in Q1, as measured by issuance from the circulation account. The primary method for minting new USDD is to have the TRON DAO Reserve deposit TRX into a staking account equal to the amount of USDD to be released. Since USDD’s inception, nearly 10% of TRX’s circulating supply has been deposited to back USDD.

Reserve Balances

The remaining USD stablecoin reserves were withdrawn from the reserve accounts on January 22, January 23, and March 11 this quarter. TRX balances across the deposit account and reserve accounts remained unchanged. Similarly, the Bitcoin backing USDD remained unchanged, while its value increased 72% from price changes in Q1.

In Q4, the TRON DAO Reserve announced that some reserves were going to be kept on centralized exchanges. Measuring only on-chain reserves, the non-TRX collateral ratio of USDD ended the quarter below 1 at 0.55, with BTC as the only reserve. Because the TRON DAO Reserve still has TRX deposited that it can sell to back the stablecoin, the collateral ratio including TRX rises above 1 to 1.54. However, it is unclear at what price the market would be willing to buy the reserve assets if the DAO were forced to sell.

Peg and Support

As the market recovered in early Q1, USDD returned to its peg. The market concerns around USDC depegging led to higher volatility across stablecoins, including USDD. During the week of March 10, the TRON-native stablecoin traded in its widest daily band since its inception. As volatility cooled, USDD came back into a tight range, though still slightly below peg.

The peg volatility can also be seen in USDD’s share of the USDD/3CRV pool on Curve. The TRON DAO Reserve uses this Curve pool to help maintain liquidity for USDD on Ethereum and to keep the stablecoin peg. The pool contains USDD and 3CRV, Curve’s DAI/USDC/USDT stablecoin pool. The pool has been fairly drained of liquidity over the quarter, starting with over $37 million and ending under $3 million, of which only $576,778 is 3CRV.

The persistent trading below the peg has also kept the PSMs on TRON from being funded by the market. The PSMs are most effective at maintaining the peg when it trades above $1, as users can buy USDT, USDC, TUSD, or USDJ and deposit them into the PSM for a 1:1 exchange of USDD. If the stablecoin is trading below its peers, then users can buy it for less than $1 and exchange it 1:1 with any asset in the PSM as long as the PSM is funded. Although the net change in PSM balances was zero over the quarter, price volatility helped drive over $120 million of transactions through the PSM in Q1’23.

Adoption and Usage

The number of holders of USDD on TRON stayed just above 130,000 in Q1, despite market and price volatility. Q1’23 saw the lowest transaction volume of USDD on TRON in its short history, both by the number of transactions and total volume. The low transaction volume could be reflective of the relatively low price volatility of USDD in Q1. For comparison, USDD volume spiked in previous quarters around times of uncertainty and depegging.

Almost half of the USDD on TRON is participating in other DeFi protocols. JustLend is the leading lending protocol on TRON, with over 235 million USDD deposited to earn yield. Despite the ample supply, the borrowing demand for USDD has not been commensurate, with only 5.6 million USDD borrowed at quarter’s end. The remaining USDD on TRON is primarily on exchanges and in user wallets.

USDD was launched in May of 2022, with Tether’s USDT already dominating the stablecoin market on TRON. Like most other stablecoins on TRON, USDD has not been able to take a substantial share of the stablecoin market on TRON.

Qualitative Analysis

In the first quarter of the year, USDD expanded its reach and partnerships in the cryptocurrency ecosystem. On January 11, USDD announced a partnership with SwapFish, a decentralized exchange built on the TRON blockchain. This partnership provides an additional platform for users to trade USDD, increasing its liquidity.

On January 30, LayerZero Labs announced that USDD could be sent through the Aptos Bridge, a cross-chain bridge between the TRON and Ethereum blockchains. This integration increases the interoperability and flexibility for USDD users.

In February, USDD was added to several cryptocurrency exchanges, including the HyperPay Flash Exchange, SushiSwap on BitTorrent, and Wombat Exchange. These listings further increased USDD's liquidity and provided users with additional options to trade and earn yield with USDD.

Additionally, USDD was added as a reward for Quest 3 on QuestN, a marketing and growth tool for protocols. It allows protocols to build introductory quests for new users with rewards as incentives. USDD was added to the Assure Wallet in February, further increasing its accessibility and utility.

In March, USDD made inroads on more crypto infrastructure platforms. First, it was made available on FaTPay, a crypto on-ramp and payment service provider. Shortly thereafter, USDD was listed on blockbank, a mobile banking platform that provides users with access to cryptocurrency services. These listings provided USDD users with another platform to use and trade USDD.

Overall, the events over the first quarter of the year should help USDD's continued expansion in the cryptocurrency ecosystem. These partnerships and listings increase USDD's liquidity, accessibility, and utility.

Closing Summary

The TRON DAO Reserve has proactively sought out integrations and opportunities for users to engage with USDD. Unfortunately, these have yet to drive demand for or increased usage of the stablecoin, as seen in the number and volume of transactions. The removal of stablecoins from the reserves likely influenced the price of USDD to consistently trade below $1. At current prices, BTC’s backing alone is insufficient to maintain USDD. That said, the TRON DAO Reserve does have sufficient TRX, at current prices, to back USDD dollar for dollar.

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