After Justin Sun puts $100 million in Huobi as a show of faith, Tron’s stablecoin declines.
According to statistics from Nansen, the rate of withdrawals from crypto exchange Huobi slowed on Sunday, despite a recent decline in the price of Tron’s USDD stablecoin.
On Friday, clients of Huobi withdrew $60.9 million from the Singapore-based exchange after rumours surfaced that the exchange will reduce its workforce by 20%.
On Friday, crypto billionaire Justin Sun, who owns a controlling share in Huobi and established Tron in 2017, demonstrated his trust in the exchange by depositing $100 million worth of stablecoins. The deposit consisted of both USD Coin (USDC) and Tether (USDT).
According to statistics from Nansen, the rate of withdrawals dropped to a little under $12 million by lunchtime on Sunday. The weekly withdrawals decreased from $94.2 million on Friday to $84.2 million on Sunday.
Tron’s USDD, which is intended to be tied to the dollar’s value like other stablecoins, has fluctuated between $0.983 and $0.972 during the previous week. Its price was $0.977 at the time of writing.
The most recent occurrence of USDD losing its $1 peg occurred in October, and according to CoinGecko, the stablecoin has not been valued at $1 for more than a month. Previously, USDD fell below $1 on June 12, 2017 — the month after the collapse of the Terra blockchain — and did not fully recover until July 26, 2018.
As of this writing, USDD’s market value has decreased by $6.5 million over the previous 14 days, to $709 million. Compared to Tether and USD Coin, their respective market capitalizations are $66.3 billion and $43.9 billion.
In contrast to Tether and USD Coin, Tron’s USDD is an algorithmic stablecoin that maintains its price via trading incentives and collateralized storage of crypto assets. Last year, algorithmic stablecoins came under the public spotlight after Terra’s stablecoin, UST unexpectedly lost $40 billion in value.
Andrew Thurman, a Simian Psychometric Enhancement Technician at Nansen, told Decrypt that despite all the technology involved in crypto and stablecoins, it ultimately boils down to humans.
“Algorithmic stablecoins often have built-in stability mechanisms, but the fundamental driver of their peg is frequently the community’s belief that they will be able to redeem their algo stables for a whole dollar,” he said. “If enough individuals lose trust in the peg, they will choose to trade their algo stables at a haircut rate, which will cause the asset to deviate farther from the peg.”
Thurman referenced his firm’s examination of the UST collapse, which concluded that the collective loss of trust from so-called “whales” precipitated the collapse.