Amid the memecoin hype on the Tron network, Justin Sun is facing backlash for removing over $700 million in Bitcoin (BTC) as collateral for USDD without the vote of the Tron DAO Reserve. Sun has now spoken out on 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 USDD stablecoin collateral reserves.

USDD is a decentralized, over-collateralized stablecoin pegged to the US dollar via TRX and managed by the Tron DAO Reserve. According to the report, the significant change means that the stablecoin is now almost entirely backed by TRX, except for 20 million USDT.

Online reports unveil BTC removal from USDD collateral. Source: Symbio on X

The change was made “quietly” without consultation or approval from the DAO, despite maintaining an emphasis on community governance. USDD’s transparency page reportedly listed 12,000 bitcoin under an address that has since been removed.

The removal raised questions among investors, who criticized the lack of transparency, with many X users questioning the Tron Foundation’s claim that it is a “decentralized stablecoin.”

Other community members drew parallels between Sun’s “shady” actions and the behavior that led to the collapse of UST or FTX, while others noted that the news seemed like “100 red flags.”

Veritas Protocol claimed this is not the first issue with USDD’s collateral. According to the post, “it has also had 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. The Tron founder claimed that USDD’s mechanism is “not mysterious” as it works like MakerDAO’s DAI.

Sun explained that collateral holders can move the funds if the collateral exceeds the amount set by the system. According to the post, this amount is usually between 125% and 150%. If the collateral falls below a certain amount, “it must be topped up; otherwise, the collateral may trigger liquidation.”

Tron's Founder addresses BTC removal without DAO's vote. Source: Justin Sun on X

Building on this, Sun claims that “any collateral holder can freely withdraw any amount without anyone’s consent.” He also noted that USDD currently “has a long-term collateralization rate of over 300%,” which is inefficient for capital utilization and is planned to increase.

Currently, the long-term collateralization rate of USDD is over 300%, which means that the capital utilization is not very efficient. TRON DAO Reserve plans to invest time in the future to increase the value of USDD to make it a more competitive decentralized stablecoin in the market. Remember, Tron is also a kingdom of stablecoins.

USDD’s X-Account quoted Sun’s response, reiterating TRD’s plans to update and improve the stablecoin. Nevertheless, Crypto Critic Pod co-host Bennet Tomlin questioned the Tron founder’s statement. Tomlin claims that Sun’s description does not match the issuance process described on the USDD page.

Furthermore, he stated that according to the white paper, the removed bitcoins are “explicitly intended to be managed by the TRON DAO Reserve (…) and not by the collateral holders that Sun envisions.” At the time of writing, Sun has not yet responded to the apparent discrepancies raised by Tomlin.

TRX is trading at $0.15 in the three-day chart. Source: TRXUSDT on TradingView

Featured image from Unsplash.com, chart from TradingView.com