Bitrabo Editorial
Recent actions by Justin Sun related to the removal of 12,000 Bitcoin worth $732 million from USDD’s collateral on the Tron network have sparked controversy. Critics have raised concerns over the lack of transparency and decentralization in the stablecoin’s governance.
Significant Changes in USDD Collateral
Reports surfaced revealing the removal of a substantial amount of Bitcoin from Tron’s Decentralized USD (USDD) stablecoin reserves. This move altered the collateral makeup of USDD, making it almost entirely backed by TRX with a small portion in USDT.
The action was taken without the approval of the Tron DAO Reserve, contrary to the community governance model that Tron emphasizes. The transparency page for USDD initially showed 12,000 Bitcoin in a specific address, which has now been removed, prompting skepticism among investors.
Community members highlighted similarities between Sun’s actions and past instances that led to the downfall of other stablecoins. The situation has been described as raising multiple red flags, casting doubt on the decentralized nature of USDD.
Veritas Protocol also referenced previous issues with USDD’s collateral, suggesting a pattern of handling significant reserves without proper consultation with the DAO.
Justin Sun Responds to Criticism
In response to the criticism, Justin Sun provided an explanation on the X platform. He clarified that USDD operates similarly to MakerDAO’s DAI in terms of collateral management.
Sun elaborated on the mechanism where collateral holders are allowed to withdraw funds when they exceed the specified limit, typically set between 125% and 150%. If the collateral falls below a certain threshold, additional funds must be supplied to prevent liquidation.
Sun claimed that any collateral holder can freely withdraw funds without requiring approval from others. He also mentioned that USDD currently maintains a long-term collateralization rate of over 300%, which he deemed inefficient for capital utilization and subject to future improvements.
“USDD currently has a long-term collateralization rate exceeding 300%, which means that the capital utilization is not very efficient. The TRON DAO Reserve plans to spend time upgrading USDD in the future to make it a more competitive decentralized stablecoin in the market. Remember, Tron is also a kingdom of stablecoins.”
While USDD’s X account echoed plans for upgrading the stablecoin based on Sun’s response, Bennet Tomlin from Crypto Critic Pod questioned Sun’s explanation, pointing out discrepancies between Sun’s statements and the official USDD issuance process as described in the whitepaper.
Tomlin highlighted that the removed Bitcoin should have been managed by the TRON DAO Reserve based on the whitepaper, not through the collateral holders as Sun suggested. As of now, Sun has not responded to the raised concerns regarding these inconsistencies.