Popular cryptocurrency enthusiast and YouTube investigator, Coffeezilla, recently expressed doubts about the new stablecoin’s legitimacy.
Stephen Findseisen, more known as Coffeezilla, has called into question some of the working principles backing the newly instituted stablecoin, USDD. Findseisen, with more than 1.1 million subscribers, describes himself as a “crypto scam investigator”. He has likewise increasingly gotten media attention in the past months.
USDD vs UST
According to Findseisen, Justin Sun’s dealings and parallels with the almost defunct UST could be “suspicious”. Findseisen noted that the stablecoin has been rife with controversy since its inception, despite its short existence. The Youtuber suggests most of it the controversy spills over from its billionaire inventor, Justin Sun. In addition, he also cited Sun’s close shaves with both Chinese and US authorities. The TRON founder allegedly once spent months hiding out in the US after conducting an illegal initial coin offering.
Sun’s new project is the USDD stablecoin. Launched just after UST’s collapse, USDD has grown to be the 9th largest stablecoin by market cap. According to the TRON DAO reserve site, USDD is completely decentralized, and over-collateralized, which should protect the stablecoin from a Terra-style crash. However, Coffezilla’s comments have caused speculation on whether or not the company’s claims are legitimate.
‘USDD Could Be a Ponzi Scheme’, Coffeezilla Suggests
The YouTuber attacks both the company’s claims of decentralization and over-collateralization. In a viral video that has already seen 360k views in just under a day, Stephen asserts that both of these claims are false. According to the YouTuber, USDD is, in fact, not very decentralized at all.
Unlike UST and other algorithmic stable coins, USDD is yet to enable its arbitrage trading feature. This means that users cannot actually burn or mint new USDD. While this does protect the stablecoin from the drastic devaluation Terra suffered, it also suggests that only a few entities can mint new USDD. As a result, Coffezilla concludes the stablecoin isn’t as decentralized as it presents itself.
Among the entities allowed to mint new USDD are Alameda Research, TPS Capital, and Poloniex. The latest recently received investments from Justin Sun. Another development casting doubt on USDD’s decentralization claim is the large number of USDD tokens minted by the founder of the stablecoin, Justin Sun.
Of the total 723 million USDD units minted, over 600 million of these came from a wallet address linked to Sun himself.
Arbitrage and Yield Rates
Coffeezilla also theorizes that USDD’s lack of arbitrage could be the reason why the stablecoin has remained just under a dollar since its inception. The TRON DAO reserve has stated that its developers will enable this feature as the stablecoin grows organically.
Asides this, Findseisen casts suspicions on the company’s claim of over-collateralization. According to the YouTuber, the stablecoin’s overcollateralized claim only stands because it is still relatively small. Over time, as more investors pump funds into the stablecoin, the USDD’s value will eventually rise far above that of its collateralized assets. In the case of market upheaval, this will leave the coin at risk of a serious devaluation.
Finally, the YouTuber also considers the stablecoin’s proposed 30-40% risk-free yield rates dubious. He theorizes that the interest rates are unsustainable, and the USDD project is only a scheme for Justin Sun to cash out on his TRON holdings.
TRON’s team are yet to make any comments regarding Findseisen’s claim. At present, USDD trades at $0.978, 2.2% down from its pegged mark of $1.