Amid the memecoin frenzy on the Tron network, Justin Sun is facing backlash for the controversial removal of over $700 million in Bitcoin (BTC) as USDD’s collateral without the Tron DAO Reserve’s vote. Sun has now addressed the situation after the move raised concerns about the stablecoin’s decentralization.
12,000 Bitcoin Removed From USDD Collateral
On Wednesday, online reports revealed that 12,000 Bitcoin, worth around $732 million, were removed from Tron’s Decentralized USD (USDD) stablecoin collateral reserves.
USDD is a decentralized over-collateralized stablecoin pegged to the US Dollar through TRX and governed by the Tron DAO Reserve. According to the report, the significant change means the stablecoin is now almost fully backed by TRX, except for 20 million USDT.
Online reports unveil BTC removal from USDD collateral. Source: Symbio on X
The modification was done “silently” without the DAO’s consultation or approval despite the continued emphasis on community governance. Reportedly, the USDD transparency page listed 12,000 Bitcoin under an address, which has now been removed.
The removal raised questions among investors who criticized the lack of transparency. Many X users questioned the “decentralized stablecoin” narrative claim by the Tron Foundation.
Other community members drew parallels between Sun’s “shady” actions and the behavior that led to the collapses of UST or FTX. Meanwhile, others noted that the news seemed like “100 red flags.”
Veritas Protocol alleged this is not the first issue with USDD’s collateral. Per the post, it “has also faced issues with its collateral, such as storing significant amounts of HTX without consulting the DAO.”
Justin Sun Addresses Concerns
Following the criticism, Justin Sun addressed users’ concerns in an X post. Tron’s founder claimed that USDD’s mechanism is “not mysterious” since it works like MakerDAO’s DAI.
Sun explained that when the collateral exceeds the amount specified by the system, collateral holders can move the funds. Per the post, this amount is usually set between 125% and 150%, and if the collateral falls below a certain level, “it needs to be topped up; otherwise, the collateral may trigger liquidation.”
Tron's Founder addresses BTC removal without DAO's vote. Source: Justin Sun on X
Based on it, Sun alleges that “any collateral holder can withdraw any amount freely without anyone’s approval.” He also noted that USDD currently “has a long-term collateralization rate exceeding 300%,” which is inefficient for capital utilization and is planned to be upgraded.
Currently, USDD has a long-term collateralization rate exceeding 300%, which means that the capital utilization is not very efficient. The TRON DAO Reserve plans to spend time upgrading USDD in the future to make it a more competitive decentralized stablecoin in the market. Remember, Tron is also a kingdom of stablecoins.
USDD’s X account cited Sun’s response, echoing TRD’s plans to upgrade and enhance the stablecoin. Nonetheless, Bennet Tomlin, co-host of Crypto Critic Pod, questioned Tron founder’s statement. Tomlin claims Sun’s description does not match the issuance process described on USDD’s page.
Moreover, he stated that, according to the whitepaper, the removed Bitcoin is “explicitly supposed to be managed by the TRON DAO Reserve (…), not whatever collateral holders Sun is imagining. At the time of writing, Sun has not responded to the apparent discrepancies raised by Tomlin.
TRX is trading at $0.15 in the three-day chart. Source: TRXUSDT on TradingView