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Justin Sun Says Algorithmic Stablecoins are Still a Good Idea

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TRON (TRX)

The collapse of the Terra USD (UST) has shed light on the failures of algorithm stablecoins. However, despite UST collapsing, the co-founder of Tron, Justin Sun, has said that he still believes in the idea of algorithmic stablecoins.

Sun is the founder of the Tron blockchain, and he is Grenada’s ambassador to the World Trade Organization. According to the executive, the collapse of LUNA and UST could be taken positively and used as a lesson on what should be avoided when building algorithmic stablecoins.

Justin Sun believes in algorithmic stablecoins

Terra was one of the largest ecosystems in the cryptocurrency sector, and it had a combined value of $40 billion. The Terra network was created in 2018, and it was one of the most promising projects over the past year. The blockchain had attracted adoption from both retail and institutional investors, and the iconic growth was exhibited in the network’s total value locked (TVL).

However, the growth of the UIST stablecoin has been ranked as a top reason why the project failed. During an interview with CoinDesk, Sun said that “If I was Do Kwon I would’ve taken care of the situation in a much more careful way.”

UIST was not the only algorithmic stablecoin in the sector. Three days before UST depegged, the Tron network released its algorithmic stablecoin dubbed USDD. Some members of the crypto community had said that the dynamics of the USDD stablecoin mimicked those of Terra UST.

No accurate report or evidence points to reasons why the UST stablecoin collapsed. However, there have been conspiracy theories, with the most popular being that BlackRock and Citadel securities exploited a flaw in the design of the stablecoin and forced massive liquidations. Others said that the stablecoin collapsed because it could not withstand the stress caused by the recession across the crypto market.

Sun is popular for having radical views about the crypto space. He noted that just before the UST stablecoin started its descent, there was a massive capital outflow from the UST liquidity pool through the Curve protocol.

The attack happened amid a critical upgrade process within the Terra network. The Terra leadership team was removing liquidity from the 3pool stablecoin swap to its dedicated 4pool to improve UST dynamics. However, the transition presented the ideal opportunity for anyone who wanted to launch an attack against the protocol.

Similarities between UST and Tron’s USDD

Experts have pointed out the similarities between the UST stablecoin and Tron’s USDD. Sun said that the idea to create the USDD stablecoin was birthed three months ago, and he thanked the Terra network for the lesson learned following the collapse of UST.

However, despite his optimism, algorithmic stablecoins are less trusted than stablecoins fully backed by other assets. Sun has also expressed concerns about the future of USDD, saying that it was still vulnerable to attacks by short-sellers and it could face a similar fate as UST.

The Terra network cannot recover the damage caused to UST, as every attempt to repeg the stablecoin has been futile. Therefore, algorithmic stablecoins that will be created in the future can take lessons from the collapse and focus more on the organic growth of the project. Such stablecoins also need to focus on decentralization to achieve success.

The Tron network provides low fees, and it is the largest network for the Tether (USDT) stablecoin. Like Terra’s UST, USDT has also been criticized for being too centralized. However, Sun said that he was optimistic that Tether was fully backed.

To learn more visit our Investing in TRON guide.

Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.

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