When it comes to stablecoins, everyone is concerned about one question: when the market is chaotic, can it be trusted? Especially after experiencing the 'algorithmic stablecoin nightmare' of the UST collapse, people are more fearful. Today, let's set aside those complicated terms and chat like friends, breaking down and examining USDD—this stablecoin that bears the flag in the TRON ecosystem—how it attempts to become an unkillable 'cockroach' in the 2025 crypto storm.
From 'algorithmic naked running' to 'wearing a bulletproof vest'
USDD wasn't always this 'stable'. It initially wanted to play the pure algorithm game, relying on code and expectations to stabilize the coin's price without real money. As a result, in 2022, the market experienced a significant crash that directly took down its counterpart UST and rang alarm bells for all algorithmic stablecoins: relying solely on belief cannot hold up.
So USDD has learned and made a big transformation in version 2.0. The core idea is: find a 'support' for every penny, and this support must be worth more than the USDD itself. This is what we call 'over-collateralization.' Now, every time you see a USDD, the assets locked in the smart contract behind it could be TRX, BTC, or even USDT, USDC, and their total value is higher than that of USDD itself. It's like wanting to borrow 100 bucks; I have to pledge something worth 150 bucks to you, so that both of us feel secure.
This 'support combination' is quite sophisticated, with volatile mainstream coins (like BTC, TRX) for growth and extremely stable stablecoins (USDT, USDC) for safety. The key is that all these collateral assets can be clearly checked on-chain; if someone wants to operate in the dark, there’s no way.
The 'automatic liquidation' at critical moments: liquidation mechanism
Having collateral alone is not enough; what if the market crashes and the collateral value shrinks? USDD's second skill comes into play: the liquidation mechanism. You can think of it as an entirely automatic 'safety valve.'
Set a warning line, such as a collateral ratio below 130%. Once the market crashes, causing the locked BTC and TRX to drop in value and touch this line, the system will immediately initiate 'surgery.' It will automatically sell part of the collateral, swap it for USDD, and burn it, reducing the total debt, thereby quickly pulling the collateral ratio back above the safety line.
This process is entirely executed by code, fast, and no one can stop it. At the same time, it is designed to be profitable, attracting a group of 'liquidators' eager to help complete this operation, and they can earn a small discount asset as a reward. This ensures that when a crisis occurs, the repair mechanism can operate immediately and automatically, preventing a 'drop -> insufficient collateral -> panic selling -> continued drop' death spiral.
There’s also a 'stabilizer': PSM
In addition to the two main pillars mentioned above, USDD also comes with a 'stabilizer'—the price stability module (PSM). This tool is particularly simple and straightforward: it allows you to directly exchange USDD for stablecoins like USDT in its treasury at a 1:1 ratio, with zero fees.
What is this for? Once the price of USDD in the market drops to $0.99, arbitrageurs will rush in to buy USDD at a low price, then swap it for $1 USDT through PSM, making a profit on the difference. This process will increase the demand for USDD, directly pushing the price back to $1. The opposite is true as well. This gives the market a very clear 'psychological anchor.'
The 'little braid' behind the glory: is decentralization genuine enough?
It looks like this set of combinations is perfect, right? But USDD is not without controversy. Its biggest point of contention is: you claim to be decentralized, but who really has the final say?
The most typical example is last year when the TRON DAO Reserve, which manages the collateral treasury, suddenly moved nearly $750 million worth of BTC reserves without community voting. Although it was later explained as being for 'improving capital efficiency,' and the total collateral ratio was still high, this operation itself made many people skeptical: what happened to DAO governance? At critical moments, do a few people still have the final say? Isn't this a bit 'centralized' again?
This actually points out a core contradiction in all decentralized stablecoins: how to balance efficiency, security, and community governance? Relying entirely on code may be too rigid, but too much human intervention goes against the original intention of 'trustlessness.'
So, what insights does USDD provide us?
By 2025, the model of USDD 2.0 shows us a pragmatic middle path: not blindly trusting pure algorithms nor completely leaning towards traditional finance, but rather creating a 'hybrid immune system.' Using over-collateralization as a foundation, employing automatic liquidation to respond to sudden crises, and regularly fine-tuning with tools like PSM.
It tells us that to build a solid bridge in the crypto world, having idealistic blueprints is not enough; there must also be real steel bars (high-quality collateral) and an automatically triggered fire-fighting system (liquidation mechanism). However, the question of who manages this bridge and who defines the maintenance rules may be even more difficult to resolve than the technology itself.
In the future, whether a stablecoin can truly become the financial cornerstone of Web3 depends on both technological robustness and governance transparency and credibility. For ordinary users like us, don't just pay attention to what its advertisements say; look more at how solid its 'treasury' is on-chain and pay attention to the dynamics of its governance community to truly judge whether this 'submersible' can safely navigate through the deep and dark currents of the crypto world.
