Crypto exchange FTX, trading firm Alameda Research, and news of the hundreds of other companies exposed to their collapse has kept the spotlight off a few floundering projects. Take, for instance, Justin Sun’s personal “algorithmic” stablecoin USDD.
FTX withdrawals stopped functioning on November 6 and 7. Two days later, something broke for USDD. Price briefly spiked to $1.01 on November 9 and then began to drop. USDD slipped from its $1 peg, falling to as low as $0.97. The stablecoin last maintained its promised peg on November 14 — exactly one month ago. So what’s the problem?
It turns out Sun’s algorithmic stablecoin is neither algorithmic nor a stablecoin. The updated whitepaper now includes some ability to exchange USDD for other stablecoins like tether (USDT) and USD coin (USDC). However, it also promises that the Tron DAO Reserve has a mechanism to ensure the asset stays pegged to the dollar. Clearly, that mechanism has failed.
It’s worth noting that the Tron DAO Reserve is currently offering “risk-free” yields of nearly 50% on staking — a stunning and concerning figure.
Earlier this year, Sam Bankman-Fried tried to distance himself and his firm Alameda Research from USDD trading. Only, the coin was listed on multiple FTX trading platforms. It’s possible that Alameda acted as a market maker for USDD on FTX.
Even with a massive uptick in volume last week and no real way (or incentive) to short the 57th largest cryptocurrency, USDD is still unable to claw its way back to a peg — suggesting the issue lies outside the scope of short-sellers or market manipulation.
The largest market for USDD is on crypto exchange Huobi, which is rumored to have been purchased by Sun through an investment vehicle, About Capital Management, in October of this year. Its manager Ted Chen has assumed a board seat at Huobi, along with Sun. Interestingly, Huobi board member Leah Wald is the chief exec of Valkyrie Investments — another fund invested in by Sun.
It appears that the real interest in Justin Sun’s stablecoin is Sun himself. Can this somehow save his flailing “algorithmic stablecoin”?