Speaking of algorithmic stablecoins, many people may still have lingering fears. During the UST crash, how many lost everything? The entire market almost developed PTSD regarding the concept of algorithmic stability. But did you know? Amidst this wreckage, USDD not only survived but thrived spectacularly. Its TVL exceeded $600 million, with multi-chain deployment covering 7 public chains. The interest-bearing version, sUSDD, reached a TVL of $84 million just two months after its launch. What secrets lie behind this?

Let's clarify things first. USDD is no longer a purely algorithmic stablecoin as of January 2025. It underwent a complete transformation, shifting from a model that maintained its peg through minting and burning mechanisms to a CDP, or collateralized debt position model. What does this shift mean? Simply put, it has changed from a shell game to real collateral, with each USDD backed by over 2 to 3 times the value in crypto assets.

You might ask, what’s so great about the collateral model? Isn’t DAI doing the same thing? The key is that USDD has taken this concept to the extreme and added several layers of insurance. Let’s break it down one by one.

Let’s first talk about the CDP mechanism. If you want to mint USDD, you need to lock assets such as TRX, sTRX, or USDT into the smart contract. The system will monitor your collateralization ratio in real-time. What is the collateralization ratio? It means if you lock 100 USD worth of TRX, you can mint a maximum of 40 to 80 USD of USDD, depending on the volatility of the collateral. For volatile assets like TRX, the collateralization requirement is higher, possibly starting at 150%, while stablecoins like USDT only require 120%.

There is a particularly clever design here; USDD has set up multiple vaults targeting different risk levels. The TRX-A vault has a collateralization ratio of 276.85%, TRX-B vault is 293.08%, and TRX-C vault is as high as 302.31%. What does this mean? Even if the price of TRX halves, these vaults will still have sufficient collateral to support the USDD, and there won't be a situation of insolvency.

However, collateral alone is not enough. Market fluctuations cannot be stopped. What if the price of the collateral falls below the safety line? USDD has designed an automatic liquidation mechanism. Once your collateralization ratio drops below 150%, the system will immediately initiate a Dutch auction to sell your collateral to repay the debt. This auction mechanism is particularly ruthless, with prices moving from high to low. As long as someone is willing to take over, the transaction is completed immediately, ensuring that bad debts do not accumulate.

What’s even more considerate is that the system will issue warnings before you are in danger. When your collateralization ratio drops to 155%, you will receive an email notification, giving you time to add more collateral. This risk management is quite effective in DeFi.

Having discussed CDP, let’s talk about PSM, which stands for Peg Stability Module. This is simply the anchor stability module, and it is USDD’s secret weapon.

The logic of the PSM is very straightforward. You can always exchange USDT or USDC for USDD at a 1:1 ratio, and vice versa. This exchange has zero slippage and zero fees, except for a small gas fee on the chain. What does this mean? As long as the market price of USDD deviates from 1 USD by even 0.1%, arbitrageurs will rush in to exploit the price difference.

For example, if USDD drops to 0.998 USD, arbitrageurs will buy USDD from the market at 0.998 USD and then exchange it for USDT at 1 USD through the PSM, making a profit of 0.2% in one round. This risk-free arbitrage will continue until the price of USDD returns to 1 USD. Conversely, if USDD rises to 1.002 USD, arbitrageurs will exchange USDT for USDD through the PSM and sell it on the market, similarly bringing the price back down.

The power of this mechanism lies in its independence from any centralized intervention; it is entirely completed by the market. As long as there are sufficient reserves in the PSM, the peg of USDD is as stable as a rock. Currently, the PSM reserves on the TRON chain exceed 60 million USD, and there are over 10 million USD on Ethereum. These funds act as a moat for USDD; any peg deviation will be arbitraged back immediately.

However, there is a problem: what if everyone redeems USDD at once and the reserves are insufficient? USDD’s approach is to use the PSM reserves to earn interest. Through the Smart Allocator, idle USDT is deposited into audited lending protocols like Aave and JustLend, yielding an annual return of approximately 3.94%. This yield will be distributed to sUSDD holders, meaning that storing USDD not only prevents depreciation but also earns interest.

The risk control of the Smart Allocator is particularly strict. First, it only selects top-tier protocols; Aave and JustLend are both well-established DeFi platforms that have undergone multiple rounds of audits. Secondly, it sets strict investment caps and never uses all reserve funds for yield farming, always keeping a portion for emergency liquidity. Additionally, it invests in phases, initially investing a small portion to observe risks and gradually increasing the investment once safety is confirmed. Lastly, it monitors in real-time; if any anomalies are detected in the protocol, funds are withdrawn immediately.

This yield model is a significant breakthrough in the stablecoin sector. Traditional stablecoins like USDT and USDC have issuers that invest the reserves in government bonds for interest, but users receive nothing. USDD directly distributes the profits to holders, which embodies the true spirit of decentralization.

At this point, I must mention the sUSDD product. It is essentially the interest-bearing version of USDD. When you deposit USDD, you receive sUSDD based on the current exchange rate. For example, if you deposit 100 USDD, you might receive 95 sUSDD. Over time, the yields generated by the Smart Allocator will increase this exchange rate. A year later, 100 USDD might only be exchangeable for 90 sUSDD, but the 95 sUSDD in your possession can be redeemed for 105 USDD. The difference is your profit.

The most impressive aspect of sUSDD is its versatility. You can use sUSDD as collateral to borrow from other DeFi protocols, provide liquidity mining, or even trade freely on-chain. All of this does not affect its interest-bearing attributes, which significantly improves capital efficiency.

Having discussed the mechanism, let’s talk about multi-chain deployment. USDD is now natively deployed on seven chains: TRON, Ethereum, BNB Chain, Avalanche, Arbitrum, NEAR, and BitTorrent. Note that this is native deployment, not cross-chain bridging.

This distinction is crucial. Cross-chain bridges have always been the weakest link in DeFi. The Ronin bridge was hacked for 600 million USD, Poly Network was hacked for 610 million, and the Nomad bridge was hacked for 190 million. Historically, there have been countless security incidents involving cross-chain bridges. Why? Because a bridge is essentially a centralized custody service. You lock your coins in a bridge contract on chain A, and chain B will mint an equivalent amount of wrapped tokens for you. This process relies on multi-signature wallets or validating nodes. Once these nodes are compromised, the entire bridge's assets are lost.

The native deployment of USDD completely avoids this risk. Each chain has its own independent CDP system and PSM module. When you collateralize ETH on Ethereum to mint USDD, these USDD are generated directly on Ethereum without going through any cross-chain bridge. When you use USDT on the BNB Chain to exchange for USDD through PSM, it is also minted directly on the BNB Chain. The USDD on each chain is issued independently and does not rely on one another.

The benefits of this design are manifold. Firstly, security is greatly enhanced; without cross-chain bridges, there is no risk of bridge attacks. Secondly, user experience is improved; you mint and redeem on the same chain where you use it, with no need to wait for cross-chain confirmations. Finally, liquidity is deeper; each chain has its own PSM reserves and CDP treasury, so there won't be situations where liquidity on a certain chain runs dry.

The deployment on Ethereum is a typical case. After launching in September 2025, it minted 8.8 million USD of USDD in just a few months. Users can directly collateralize ETH or use USDT to exchange for USDD on Ethereum, and then use it in Ethereum-native protocols like Aave and Uniswap. The entire process is seamless and does not require leaving the Ethereum ecosystem.

In terms of security, USDD has invested significantly. CertiK, a top global blockchain security firm, has given USDD an AA rating with a high score of 87.5. It’s known that CertiK has very strict audit standards, and achieving AA typically means that the code quality and security design are top-notch. ChainSecurity has also completed five rounds of independent audits without finding any major vulnerabilities.

The audit report emphasizes USDD’s liquidation mechanism and emergency shutdown feature. The liquidation mechanism has been discussed; the Dutch auction ensures that collateral can be quickly liquidated. The emergency shutdown feature serves as the last line of defense in extreme situations. If the system detects a severe anomaly, it can pause all minting and transfers to prevent losses from expanding. This multi-layered protection is quite rare in DeFi.

Let’s talk more about the governance of USDD, which is achieved through the JST governance token. JST holders can vote on significant decisions regarding the protocol, such as adjusting the collateralization ratio, modifying the stability fee, adding new types of collateral, and even upgrading the protocol, all of which require DAO voting to execute.

Recently, an interesting proposal was made to use the protocol’s excess profits to buy back and burn JST. The logic is this: JustLend and the USDD system generate substantial profits each year. When these profits exceed 10 million USD, a buyback and burn will be initiated. This can both enhance the value of JST and create deflation for the governance token, forming a positive cycle.

From user feedback, USDD has a very good reputation within the community. It has 105,000 followers on Twitter, and the Discord and Telegram groups are very active. Many users have shared their experiences using USDD for liquidity mining, cross-border transfers, and even daily payments. One user from India mentioned that he used USDD to remit money to his family back home. Traditional banks charge a 5% fee and take three days, but with USDD, the money arrives in minutes with just a few cents in fees.

The DeFi scene is the main battlefield for USDD. On JustLend, you can collateralize sTRX to mint USDD, then deposit the USDD back into JustLend to earn interest. On SunSwap, providing USDD-TRX liquidity can earn trading fees and mining rewards. On Aave, USDD can be used as collateral to borrow other assets. These scenarios form a complete DeFi ecosystem.

Regarding future plans, USDD is preparing to expand to more public chains, deepen cooperation with payment platforms, and launch more yield products. The Smart Allocator is also considering integrating more high-quality DeFi protocols to further enhance yield. The entire ecosystem is still developing rapidly.

So, returning to the initial question, why does USDD thrive in the stablecoin market? The answer is simple: because it is no longer just a stablecoin. It is an over-collateralized decentralized stablecoin. The CDP ensures that each coin has sufficient collateral, the PSM ensures the price is always pegged to 1 USD, the Smart Allocator ensures holders can earn yields, the multi-chain native deployment ensures security and liquidity, and the strict auditing and liquidation mechanisms ensure that risks are controllable.