A Youtuber called Coffeezilla has investigated in a video if Justin Sun’s USDD is another Ponzi scheme and whether it will follow Luna’s collapse last month after it depegged.
As the cryptocurrency sector continues to grow and digital assets become more well-known, pump-and-dump scams and Ponzi schemes are becoming more common.
Notably, Stephen Findseisen, also known as Coffeezilla, has questioned a brand-new stablecoin named USDD (USDD), a crypto currency released by the TRON DAO Reserve. Indeed, the YouTuber explained in his June 24 video about a potential Ponzi scheme involving the newly issued stablecoin.
There has been debate regarding the investors’ potential exposure to risk because the USDD’s performance has consistently fallen behind the $1 peg. The USDD had a significant drop with the collapse of the dollar peg on June 13; it hit a low of $0.93 before rising to its previous level of $0.98.
Findseisen pointed out some major parallels and differences between the two coins after the Terra (LUNA) ecosystem collapsed, as well as the fact that the Ponzi-like currency claim as DeFi is not entirely accurate.
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Who created USDD?
The billionaire Justin Sun, who is quite a controversial figure in his own right and has fled several countries out of fear of prosecution, is the man behind the new stablecoin. At the same time, a former employee claims that they were constantly engaging in “insider trading all the time.”
Sun acknowledges that “we came up with the idea for USDD after witnessing Terra’s dramatic ascent.” Although it doesn’t look good, he released USDD just a few days before Luna’s collapse in an effort to persuade people that this stablecoin is different.
Justin asserts that Terra’s collapse was caused by rapid growth and excessive leverage, and he vows to avoid the same mistake.
UST and USDD compared
There are many similarities between TerraUSD and USDD. Both identity as algorithmic stablecoins, which basically means they rely on arbitrage to keep their value at one dollar. Both advertise high rates of return but acknowledge that these are probably unsustainable over the long term.
The differences start with the fact that USDD is just approximately a month old and already has a market cap of about $700 million, whereas Terra failed after amassing billions of dollars.
Furthermore, because the Arbitrage project’s mechanism has been disabled and the ability to mint new USDD is restricted to a relatively number of whitelisted organizations like Alameda Research, USDD does not currently function as an algorithmic stable coin.
This is significant because, at least temporarily, it shields USDD from the infamous algorithmic death spiral. Only when burning and minting are active can the algorithmic death spiral take place.
The level of decentralization that the USDD actually has is questioned by CoffeeZilla due to the fact that it is closely handled by a small number of whitelisted organizations.
“Like all Ponzi schemes, this one says it’s different Luna failed after it offered 20% a year and attracted billions of dollars in Investments USDD is changing the game by offering something different offering double the amount of interest nearly 39.6% per year, according to their website, and they claim it’s risk-free.”
USDD is not exactly decentralized
CoffeeZilla claims that the situation is substantially worse than just being under the control of a select few whitelisted institutions because, with access to what is almost certainly Justin Sun’s wallet, it is possible to determine the actual amount of USD that Justin’s Son is liable for minting.
The investigation determined that the correct figure is 683 million tokens, out of a total of 723 million tokens that have ever been produced. Despite wishing to see USDD expand naturally and decentralized, this shows that Sun personally created 94% of all stablecoin tokens that are now in existence.
“Not only do I obviously think this coin is offering an unsustainable yield. I think it is also a really clever way for Justin Sun to offload TRON without affecting price,” Findseisen said.
Decentralization, according to Justin Sun, is the main reason behind the need for an algorithmic stablecoin in the first place.
“I think the most important answer, at least for myself is that an algorithmic stablecoin allows you make and take decisions in your own hands. I think these days a stablecoin is the most centralized part of the decentralized world,” Sun previously said.
Honeypot pot for retail traders
“USDD looks like a honeypot for retail traders to get dumped on by Justin Sun himself,” the YouTuber alleged.
The total value of the portfolio of cryptocurrencies held by the Tron DAO Reserve, which is used to back all of the coins in circulation, is $2.31 billion.
A number of major digital assets, including TRX, BTC, and USDT, are over-collateralized to protect the reserve assets that USDD is based on.
The total value of the assets that have been collateralized when the collateral ratio is set at 130 percent is substantially more than the total quantity of USD that is now in circulation.
Watch the video below: