Uncovering FTX Bankruptcy: Reserves, SBF, Alameda & Binance
FTX Bankruptcy: SBF, Alameda, Binance, VC funds, hack, federal investigation, Proof of Reserves, calls for transparency
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A few days ago, the price of another stablecoin began to drop. This time, the depeg hung like a sword of Damocles over USDD, a stablecoin backed by Justin Sun. The price of the coin fell to $0.967. To stabilize the price, the Tron DAO Reserve bought $50 million worth of BTC and TRX. Yet, the price has not recovered.
A reserve of cryptocurrencies and other stablecoins was amassed to overcollateralized USDD and guaranteed to be maintained at a minimum of 130% of the total USDD in issuance. Tron said that it would begin publishing real-time updates on the collateral ratio on the Tron DAO Reserve website from June 5. The ratio on Monday morning was 280%.
USDD is a native stablecoin of Tron. Tron founder Justin Sun launched the new algorithmic stablecoin on May 5. USDD has $10 billion in crypto as collateral and relies on Tron’s native TRX to maintain the $1-peg. When the price is lower than $1, users will buy TRX with USD and vice versa.
USDD had a great start. USDD has been rapidly growing since its inception. The coin reached its peak market cap of $713 million on June 12. As a stablecoin, the purpose of USDD is to keep the $1 peg. The coin has completed this task for the first 40 days. Price fluctuations were insignificant.
Justin Sun claimed that the algorithm would keep the US dollar peg regardless of market conditions. However, things didn’t work out as planned. Even more important, market conditions, namely the fall of bitcoin, caused the depeg of USDD. On June 13, the stability of USDD staggered when the price started dropping. USDD reached the minimum of $0.967 on June 15. The price has increased after that, but it still hasn’t recovered to $1.00.
The case of USDD unwantedly gives flashbacks to Terra. USDD might be next in line for a violent collapse. The case of USDD is similar to UST because they are both algorithmic, i.e., not backed by tangible assets. Tron claimed to burn $50 milAlion of TRX and BTC to recover the USD peg, but it only increased the price to $0.98. They still have a way to go. If they have $2 billion in reserves, doesn’t $50 million sound too small? Remember Justin Sun promised $10 billion for the collateral.
Tron DAO Reserve brags about over-collateralization of more than 280% for USDD versus 120% required by DAI. If that was the case, USDD wouldn’t have any problem maintaining $1. The major problem is that TRX comprises the central part of the collateral. Whether billions in cryptocurrencies really support USDD as Justin Sun promised remains a serious question.
Once again, the finance world receives confirmation that stablecoins aren’t so stable after all. This is especially true for algorithmic coins, as we already warned in our article for Hackernoon. The main implication is that stablecoins are sensitive to market conditions. The degree to which coins are subject to market conditions depends mainly on the amount of tangible collateral.
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