Ah, the stablecoin market has been in turmoil recently. In the last few months of 2025, several stablecoins have seriously depegged, with some dropping below $0.5, causing panic among holders, and a bunch of DeFi protocols went bankrupt, nearly leading to a market collapse. For example, during the flash crash in October, many large stablecoins briefly deviated from $1, and in November, a Bitcoin-backed stablecoin called YU crashed for the second time, dropping directly by 53%. There's also the newly launched USST, which depegged just a few hours after going live. In short, stablecoins seem “stable,” but they reveal their flaws at the slightest disturbance.
But what about USDD? Since USDD 2.0 was launched in January this year, the price has basically been pinned around $0.999, and now (December 2025) it is still hovering around $0.9996, with almost no major fluctuations. While others are in chaos, here it is calm. This is not just good luck; it is due to reliable mechanism design.
The core relies on two things: PSM (Peg Stability Module) and the arbitrage mechanism.
First, let's talk about what PSM is. Simply put, it's a 'no-slippage 1:1 exchange machine'. You take USDT or USDC and throw it directly into the PSM pool, and you can exchange it for USDD at a 1:1 rate, and vice versa. Almost zero fees (especially on the TRON chain), zero slippage. Why is this amazing? Because it gives arbitrageurs the green light.
Imagine this: If USDD becomes cheaper, they will buy USDD at a low price in the market, then go to PSM to exchange it 1:1 for USDT and sell it for profit. Conversely, if USDD is a bit expensive, they will exchange USDT for USDD to sell in the market.
In short, as long as there is profit, arbitrageurs will swarm in, pulling the price back to $1. This is the classic arbitrage anchoring mechanism, similar to MakerDAO's PSM, but USDD operates more smoothly on TRON, due to lower fees and faster speeds.
How is the liquidity of PSM now? The TRON version is the strongest, with reserves close to $60 million-$70 million (mainly in USDT), which is sufficient to handle large exchanges. There are also PSMs on ETH and BSC (BNB Chain); although their liquidity is not as thick as TRON's, it is still adequate, supporting USDC and others. Multi-chain deployment allows for greater overall buffering. Coupled with USDD's overall over-collateralization (collateral includes TRX, sTRX, USDT, with a ratio consistently above 120%), even if the market fluctuates, the system has a buffer and won't easily collapse.
Personally, I think this mechanism is much more reliable than purely algorithmic stablecoins. The early USDD 1.0 had some algorithmic flavor, and it was unpegged in 2022; now 2.0 has completely shifted to over-collateralization + PSM, having learned its lesson. Compared to stablecoins that rely on 'confidence' or single reserves, USDD's combination is more resilient—there's hard collateral backing, PSM for quick corrections, and arbitrageurs as free security.
