Tron’s USDD, another algorithmic stablecoin, has fallen below its $1 peg as Tron coin (TRX) falls by more than 35%

As Yogi Berra once said, “It’s deja vu all over again.” In May, Terra Luna algorithmic stablecoin terraUSD collapsed 99% overnight causing millions of crypto investors to lose their life savings. Just a few weeks before the collapse, the Tron DAO Reserve decided to launch Tron’s USDD, another algorithmic stablecoin similar to the terraUSD that was pegged to $1.

Fast forward a month later, Tron’s USDD is now struggling to maintain its peg to the U.S. dollar. Over the weekend, USDD plunged as low as 93 cents. USDD has since bounced back and was trading at around 97 cents as of Wednesday.

The carnage didn’t end there, TRON coin (TRX) has also fallen by 35% since its peak at the end of May. The situation has led many to say that the controversial stablecoin may suffer the same fate as terraUSD.

The Tron DAO Reserve, the community which oversees and manages the stablecoin, said in a post on Twitter that a certain degree of volatility in USDD’s price was to be expected given its “decentralized” nature. It also took to Twitter to reassure investors.

“1. Is USDD depegged? No. USDD is a decentralized stablecoin that depends on an on-chain mechanism & collateralized assets, unlike centralized stablecoin e.x. USDC, which is attached to USD in a very close spread by banking mint and redemption,” TRON DAO Reserve tweeted.

(1/8) Q&A about #USDD

1. Is USDD depegged?

No. USDD is a decentralized stablecoin that depends on an on-chain mechanism & collateralized assets, unlike centralized stablecoin e.x. USDC, which is attached to USD in a very close spread by banking mint and redemption.

— TRON DAO Reserve (@trondaoreserve) June 17, 2022

“Certain % of volatility is unavoidable,” the organization tweeted last week. “Currently, the market volatility rate is within +- 3%, an acceptable range. We will watch the market very closely and act accordingly,” TRON DAO Reserve said.

Launched in early May, Unlike other stablecoins that sit on massive cash and other cash-like assets, USDD runs a complex algorithm — combined with a related token called TRON — to maintain a one-to-one peg to the US dollar.

Meanwhile, the demise of the controversial stablecoin venture Terra has resulted in a meltdown in the crypto market, which erased billions of dollars in value in a single day.

Despite LUNA crash, TRON founder Justin Sun has relentlessly been promoting USDD, adding that LUNA’s failure was not caused by algorithmic stablecoins. Instead, he said TRON’s USSD solves some of LUNA’s problems. In a Zoom interview, Sun  said:

“I still believe in algorithmic stablecoins. I think the failure of LUNA was not because algorithmic stablecoins are not viable or are not doable…We can’t blame the algorithm just because LUNA failed.”

He also added: “When USDD’s price is lower than 1 USD, users and arbitrageurs can send 1 USDD to the system and receive 1 USD worth of TRX. When USDD’s price is higher than 1 USD, users and arbitrageurs can send 1 USD worth of TRX to the decentralized system and receive 1 USDD.”