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Luna, dead usdd, dangli

Time : 29/06/2021 Author : aw8i03 Click : + -
        With the catastrophic decoupling of the native algorithm of Terra blockchain, the stable currency UST, the crypto asset market witnessed one of the largest financial collapse events in history. When the panic in the crypto asset market spread everywhere, Tron public chain launched its own algorithmic stable currency usdd and grew against the trend, making Tron the third largest public chain after Ethereum and BSC based on the total lock value (TVL) on the chain. Ethereum, as the second largest cryptocurrency in the world by market value, is like the operating system of the crypto world. One advanced concept project after another has been born on this system. In the face of the rapidly expanding encryption market, the congested Ethereum can no longer meet the high demand of users.
 
        Therefore, instead of Ethereum, it has become the new mainstream operating system in the crypto world or a share of it has become a competitive arena in the public chain market. As expected, a number of "new public chains" ushered in a collective explosion in 2021, such as avalanche and fantom. Many projects such as defi, NFT and blockchain games were deployed on these public chains. Due to their faster transfer speed and lower handling fees, the user experience was greatly improved. "The current & lsquo; public chain competition & rsquo; is beauty pageant, and the future & lsquo; public chain competition & rsquo; is weighing", sun Yuchen, founder of wave field Tron, mentioned in a live broadcast.
 
        It is worth noting that in this public chain dispute, Tron's performance is also commendable. Tron was founded by sun Yuchen in 2017, and the main network was launched in May 2018. This is an era when the public chain has not yet become a "competitive track". Two months later, wavefield ecology completed the integration with BitTorrent, a pioneer enterprise providing decentralized Web 3.0 services, with more than 100 million monthly live users. As of May 2022, the total number of public chain users exceeded 93 million, the number of transactions exceeded 3.2 billion, and the total amount of locked positions (TVL) exceeded $8.8 billion. In addition, the circulation of stable currency of wave field version of usdt has exceeded that of Ethereum version of usdt since April 2021, ranking first in the world.
 
        It is obvious that Tron can now rank among the top three blockchains in the world in terms of total locked positions, which is due to the recent release of usdd and the boost to the entire ecosystem. On May 5, 2022, sun Yuchen issued an open letter through Twitter, announcing that Tron officially entered the algorithmic stable currency usdd (decentralized USD), and initiated the establishment of the wave field joint reserve (trondaoreserve), which became a management mechanism to maintain the price stability of usdd, adjust the supply-demand relationship, improve liquidity, and prevent the [death spiral]. Alameda research, a top proprietary trading company, ambergroup, a global crypto financial intelligence service provider, poloniex, a leading international digital currency trading platform, Mirana, a top investment team, and other industry leaders have become members of the Federal Reserve of Poland and white list institutions, and have obtained the right to create usdd.
 
        The launch of the original stable currency in a public chain can actually supplement the ecosystem with an asset that connects the whole ecosystem, and serve as a medium and value measurement standard for transactions on the chain. While enriching the ecosystem, it also brings a wide range of use scenarios and high frequency of use for the stable currency. In the traditional financial market, the cost of monetary contraction is borne by the central bank, which is usually paid by various financial instruments, that is, the central bank absorbs the volatility of market currency. In the design of the usdd algorithm, instead of using a third-party Oracle provider like the algorithm stable currency of usdn, a decentralized Oracle service that allows nodes to participate in is designed. Every n blocks will count votes, and super nodes need to vote in each voting stage. The voting content is the current price of dollars in the market, The Oracle will take the weighted median of the voting price of each super node as the real price.
 
        Therefore, the usdd transfers the responsibility of the central bank to the super node. In the short term, the TRX of the super node is diluted by casting, while in the medium and long term, the reward compensation of the usdd agreement is obtained. The participation of the centralized super nodes in Tron enables usdd to gain the consensus of the whole Tron at the beginning of its establishment, and the participation of users makes it flow quickly in the ecosystem. After its birth, usdd has brought lower handling fees and faster transfer speed to Tron users. As of May 23, the total circulation of usdd reached 460 million in less than half a month, becoming the top 100 crypto assets of coinmarketcap, the authoritative crypto asset data website.
 
        In addition, why should users hold algorithmic stable coins? Is it for value storage? If it is only for the purpose of storing value, why don't users replace the algorithm stable currency with higher risk with stable currency with less volatility such as Dai and usdc. At present, the main purpose of users holding algorithmic stable currency is the investment income given by the project party. With the support of the US $10 billion reserve fund of the Federal Reserve of Poland, the usdd introduced a higher yield rate than other algorithmic stable currencies. Before the collapse of UST, anchor, the official application in Terra ecology, provided an annual interest rate of about 19% for UST, while the algorithmic stable currency USN launched by near ecology a few months ago was 20%.
 
        However, at the beginning of the establishment of usdd, there was a rigid interest rate of 30%, which was implemented by the decentralized application and centralized institutions coordinated and integrated by the Federal Reserve of Poland. At present, the defi applications in the Tron ecosystem are justswap and sun IO has integrated usdd into the liquidity pool, allowing users to enjoy extremely high mining subsidies. According to the data, the total value of the liquidity pledge pool of usdd in these two platforms has reached US $1.3 billion. In addition to running on the Tron network, usdd is also deployed on the two public chains of Ethereum and BNB, and the usdd liquidity pool of individual online defi applications is also at the level of tens of millions of dollars, which not only injects higher transparency and stability into these two public chains and ecosystems, but also takes the first step towards the vision of usdd at the beginning of its establishment, "becoming a stable currency to maintain the whole blockchain system and realize human financial freedom through mathematics and algorithms".
 
        As the name implies, algorithmic stable currency is to adjust the total amount of market currency according to the algorithm, increase the market supply when the price of stable currency is higher than the anchor price, recover the supply when the price of stable currency is lower than the anchor price, or balance the price of stable currency by providing arbitrage space. Therefore, the algorithmic stable currency has neither the problem of relative centralization of legal currency mortgage stable currency nor the problem of low utilization rate of excess mortgage stable currency. It is regulated by market will and algorithm. Unlike the corresponding stable coins generated by legal currency trusteeship 1:1 and the over pledged stable coins cast by crypto asset pledge, the algorithmic stable coins pursue unsecured issuance. Without asset endorsement, how to guarantee the value of its issued currency? We can regard the algorithmic stable currency as simulating the open market operation of the central bank: when the price of the stable currency is higher than US $1, increase the supply.
 
        When the price of stable currency is less than 1 dollar, the supply is recovered. However, algorithmic stable currency faces a relatively big problem: it completely offsets the price control brought by centralized institutions through the algorithm, but it does not have enough market recognition to maintain its own price stability. It is impossible to avoid the doubts of the market just by giving arbitrage opportunities. Once the market loses confidence in a stable project, The "death spiral". Ust and Luna have been trying to achieve a balance. The algorithm built in the smart contract is essentially to track the supply and demand of ust and Luna. If the price of ust starts to rise to more than $1 due to more people buying UST, the holders of Luna can sell their Luna back to ust (for profit).
 
        The algorithm then converts this Luna to UST. As more ust is added to the system, the price of ust falls back to $1. On the contrary, if the price of ust falls, ust holders can convert their ust into Luna coins to reduce the supply and thus increase the value of UST. The dynamics between ust and Luna are the most important. If no one is willing to exchange their Luna or ust when the price is out of balance, the stability of ust will be at risk. If ust is not worth one dollar, the attraction of holding Luna tokens will also decrease. On May 9, 2022, the price of ust plummeted to US $0.68.
 
        The decline was due to widespread selling in all crypto asset markets. Investors do not want Luna or UST. Luna fell by as much as 60% in just a few days, and the decoupling of ust was even worse, and both crypto assets were in trouble. Even though lunafoundationguard, a non-profit organization behind Terra blockchain, released bitcoin reserves to save the price of UST, the rebound was not as expected. This makes ust fall into another problem, that is, the longer it takes to reach the 1 dollar anchor, the more likely it is to make investors lose confidence and lose credibility in the stable currency market. "Why should we store a stable currency that cannot remain stable in the volatile market?".
 
        Although usdd is also a dual currency model, the algorithm design of usdd is the same as that of UST, so that 1 usdd can always be exchanged for TRX worth 1 dollar, and at the same time, TRX worth 1 dollar can also be exchanged for 1 usdd. When the price of usdd is US $1, arbitragers and users can exchange 1 usdd for TRX worth US $1 in the usdd agreement. Assuming that 1usdd = 0.9 US dollars, the arbitrager can pay 0.9 US dollars to buy 1usdd in the external market, and then exchange 1usdd into TRX worth 1 US dollars in the system, and then sell TRX worth 1 US dollars in the external market to get 1 US dollars. The arbitrager spends 0.9 US dollars to get 1usd, and can obtain 0.1 US dollars of risk-free profit.
 
        After the above arbitrage, 1usdd will be destroyed, and the TRX of 1usd value will be cast. Because the destruction of usdd will reduce the supply of usdd, it will increase the market price of usdd. When the price of usdd is close to 1usd, there will be no arbitrage space, and the price of usdd is linked to USD. However, the difference between Tron and ust is that Tron puts "credibility" in the first place. The release of usdd is managed by the decentralized Dao's joint wave field reserve (trondaoreserve). Only 5 / 7 of the member organizations can initiate multi signature.
 
        The weakness of algorithmic stable currency lies in the mechanism setting. However, by setting a decentralized management organization, Tron can better maintain the stability of currency price, regulate the supply and demand of stable currency, provide the liquidity of stable currency, and provide crisis management under extreme market conditions while ensuring decentralization. Usdd may have been an algorithmic stable currency with multiple crypto asset endorsements and the supremacy of public trust since its birth, which has greatly reduced the risk of death spiral from the beginning, which seems to echo its desire to become the largest payment medium in the crypto asset industry. As sun Yuchen once said, as an important part of the crypto asset market, stable currency will continue to flourish.
 
        When the collapse of ust affected the entire crypto asset market, usdd can be said to have made a good start. The price stability maintained by its perfect decentralized management system has gained user confidence. Since Tron has high performance and low cost in the early stage of the crypto asset market, it is very popular with users. The usdt on Tron shoulders the task of meeting the needs of small amount transfer, which has become the symbol of Tron in the public chain and the pain point of Tron under the brand of usdt. Today, usdd leads the development of the whole Tron ecosystem. In the global public chain war, it firmly occupies the huge territory of "Three Kingdoms kill", and goes against the market to catch up with and surpass the "new public chains", striving to remove the brand and spread its wings.
 
        
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