Justin Sun’s USDD has problems
USDD is a Justin Sun-founded stablecoin that advertises a 20% yield paid to users who are willing to lend the token.
Over its several years of existence, it has destroyed its DAO, abandoned its roadmap, and has highly concentrated holdings.
Even now, there are two separate protocols that exist, both with hundreds of millions in circulating supply and substantial differences in how they function. Both also raise serious concerns about Sun’s role and about how these coins are managed.
USDD 1.0
USDD was launched as an algorithmic stablecoin modeled after the Terra/Luna system but paying even higher unsustainable interest rates to users.
However, the coin quickly abandoned its original roadmap to be integrated into the core of the TRON network and become a strangely collateralized stablecoin operated in concert with several partners, including the fraudulent trading firm Alameda Research.
It also advertised that it was governed by a decentralized autonomous organization (DAO) called the TRON DAO Reserve.
Read more: Justin Sun’s USDD removes 12,000 BTC without DAO approval
However, this DAO was effectively never consulted on matters related to the coin; it wasn’t consulted for changes in collateral and wasn’t consulted when USDD chose to store its collateral at Sun-owned HTX.
At the beginning of the year, Sun announced that the new version, USDD 2.0, would replace this coin and would offer “a 20% APY,” which it could afford “simply because we have plenty of money.”
This apparently meant that it was important that users stop asking Justin questions like “where does the yield come from?'”
USDD 2.0
USDD 2.0 is effectively a second version of one of the other Sun-founded stablecoins, the JUST stablecoin (USDJ).
Both of these coins are effectively modeled after the multi-collateral DAI system, with a combination of over-collateralized vaults and stablecoin “peg stability modules” to manage their supply.
It’s never been made clear why Sun and TRON benefit from having these two stablecoins, which have effectively the same mechanism, and USDJ has since been scheduled to be sunset.
Read more: USDD partners ignore HTX danger
This coin exists primarily on TRON but has also issued a version on Ethereum, though that version lacks many of the features, including the vaults fundamental to the design of the stablecoin.
A large portion of the token’s supply has been funded by assets that came directly from Sun-owned HTX, representing a substantial majority of the assets earlier this summer.
USDD 2.0 claims that its “governance framework of the USDD ecosystem is designed to be community-driven and decentralized, ensuring inclusivity, transparency, and adaptability.
“Governance empowers stakeholders to make critical decisions regarding the protocol’s future, stability, and growth.”
However, there’s no clear evidence of a place to participate in this governance; neither the JustLend DAO or the JST DAO seems to have governance control over USDD 2.0.
USDD 1.0 is still big
Strangely, despite the fact that USDD 1.0 has been sunset, it’s still approximately half the size of the newer version.
USDD 1.0 has a supply of 27,678,569 on TRON, 124,146,228 on Ethereum, 110,581,328 on Binance Smart Chain (BSC), and five on Avalanche C-Chain.
This is a total of approximately $262 million in total supply.
TRON is the chain where all the “infrastructure” for the management of this token lived, but strangely its remaining supply is much more concentrated on BSC and Ethereum.
USDD 2.0 has a supply of 498,295,302 on TRON and 8,779,902 on Ethereum, for a total of approximately 506 million.
USDD 1.0 no longer discloses where or if it has any collateral to preserve the value of these tokens.
Currently, USDD 2.0 claims to have approximately $547 million in collateral, which is more than the supply of USDD 2.0 but is insufficient to cover the remaining supply of USDD 1.0.
Contributing to the strangeness, the total amount of collateral listed on the “Vault” page for USDD is a mere $68 million.
Most of the remainder is approximately $89 million in the “Peg Stability Module” and approximately $390 million in the so-called “Smart Allocator,” which was funded by assets from Sun-owned HTX and which involves lending assets to earn additional yield.
Both versions have highly concentrated holdings
USDD 1.0 on TRON has highly concentrated holdings, with approximately 56% of the total supply being held in TPyjyZfsYaXStgz2NmAraF1uZcMtkgNan5, an address that was originally funded from an address labeled as Poloniex, a Sun-owned exchange, on TRONScan.
More recently this address has received funds from Sun-owned HTX.
Additionally, 3.2% of the total is held in TT2T17KZhoDu47i2E4FWxfG79zdkEWkU9N, a Sun-controlled address.
USDD 1.0 on Ethereum has even more highly concentrated holdings, with approximately 99% of the total being held in a smart contract, which appears to be a bridge to the BitTorrent Chain.
Strangely, USDD_e, which seems as though it is meant to be the supply of bridged USDD from Ethereum on Sun-founded BitTorrent Chain claims a much smaller supply than is held in this smart contract.
USDD 1.0 on BSC is somehow even more concentrated, with a total of approximately 99.5% in a smart contract, which appears to be a bridge to the BitTorrent Chain.
However, USDD-b, which is meant to be USDD bridged to BitTorrent Chain from BSC has a much smaller supply than is in this smart contract.
On Avalanche’s C-Chain, approximately 98% of the supply is held in an automated market maker contract against bridged DAI. However, the small supply of USDD on Avalanche C-Chain means this totals less than $5 held in this contract.
Read more: Justin Sun defends HTX while it lends 92% of its USDT on Aave
USDD 2.0 on TRON has approximately 61% of its supply lent on JUSTLend, which makes it eligible for the subsidized 20% yield that Sun advertises.
Shortly before the collapse of Terra, it reached approximately 75% of its total supply deposited in the Anchor protocol, which paid approximately 20% yield subsidized by Terraform Labs.
USDD 2.0 on Ethereum is more concentrated, with approximately 83% of the total supply held in Sun-owned HTX.
For some reason, HTX doesn’t include USDD in its proof of reserves process.
The highly centralized holdings of USDD combined with the lack of disclosure of all the collateral raise substantial questions about the safety of these stablecoin systems.
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