The YouTuber Coffeezilla recently became popular after he unveiled the Safemoon scam orchestrated by its founders, and now he claims via his investigation that Tron’s USDD is a scam. This is major news as the stablecoin USDD even lost its dollar peg recently. Now, it is essential to take this investigation by Coffeezilla seriously because USDD’s design is very similar to UST, which is also an algorithmic stablecoin.
Is Tron’s USDD a scam?
Most of the time, what makes a crypto project good or bad are the people behind it. USDD is founded by Justin Sun, who is not well-known for his reputation. Coffeezilla pointed out that Justin has fled many countries to avoid punishment, and there have also been reports of them engaging in insider trading. It isn’t easy to trust such a person as well as their project.
The USDD stablecoin was launched just before UST crashed. Even though they both look similar, Justin says UST’s crash was caused by the huge leverage and quick development of UST. They plan to avoid these errors making USDD a safe bet. Still, after that, the stablecoin lost its dollar peg as the markets got a little volatile.
The problems
Coffeezilla has pointed out some crucial things that we must note when evaluating USDD. First of all, even though USDD claims to be an algorithmic stablecoin, it is not. That’s because, in such a coin, the price is managed by burning and minting of coins which is currently disabled in USDD. The decentralized part is also a lie, as only a few large organizations are currently allowed to mint USDD by burning TRX tokens.
In addition to that, Coffeezilla found out that out of the $723 million USDD tokens, $683 million were minted by Justin Sun. Can we call a 94% concentration on one hand decentralized? We can’t! The YouTuber thinks Justin founded USDD, so he can offload TRX tokens without affecting the price of the token.
USDD doesn’t look safe when it just has a market cap of $700 million, while UST failed after crossing the $15 billion mark. Another thing common between UST and USDD is the high-interest rates that are unsustainable in the long run. The funny part is that even though Justin says they won’t make the same mistakes as UST, they offer almost double the interest rate at 39.6%. Anyone with the slightest idea about investing would know a 40% risk-free fixed return is too good to be true.
The failure of UST and its eerie similarities with USDD
USDD claims to be an algorithmic stablecoin, and even though the minting and burning of its tokens are paused, for now, the team will resume it sooner or later. Justin Sun can claim to do things differently, but if they maintain the price of USDD by minting and burning tokens while offering high-interest rates, then it won’t be long before we see another death spiral.
To understand what a death spiral is, let’s understand how Luna’s stable coin UST crashed. The way it worked was the Luna foundation promised users that they could swap 1 UST for $1 in Luna anytime and vice versa. So, when UST broke its dollar peg after a whale dumped nearly $200 million, investors used this price difference to arbitrage and make profits. They were able to buy 1 UST for less than $1 and get instant profits by swapping it for Luna. This way, Luna’s volume also increased, and as UST crashed utterly, so did Luna.
Now, this also makes me ask the question that if a similar thing plays out with USDD, will it also destroy Tron. It is a very popular cryptocurrency and is widely used for transactions due to its low cost and speed. However, if we go by Coffeezilla’s investigation, Tron’s founder Justin Sun is dumping it, and investors need to be careful about the situation.
Avoid investing in USDD!
This is hilarious because it shows…
a. USDD is anything but "decentralized".
and
b. USDD looks like a honeypot for retail traders to get dumped on by Justin Sun himself, the 30-40% interest rates are the bait.— Coffeezilla (@coffeebreak_YT) June 24, 2022
UST’s 20% return looked too good to be true, and it turned out that way. The same will be the case with USDD. Retailers will get wrecked again if they don’t learn from previous mistakes. Even though TronDAO claims to have a $2.31 billion reserve backing USDD, it wasn’t able to protect its dollar peg recently. So, one can never say what will happen in the future. It’s best to avoid USDD. In case you are holding TRX tokens, it is also wise to consider the possibility of it crashing due to USDD. The same happened with Luna due to UST.
Do you think Tron’s USDD is a scam as YouTuber Coffeezilla claims it to be? And can the crash of USDD stablecoin also mark the end for the TRX token? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.
Also Read: 200 Bitcoins mined during 2010 moved for the first time recently.
