Thanks to the returns offered by its algorithmic stablecoin, the Tron blockchain (TRX) comes in at the 3rd place, according to the total value locked (TVL) in decentralized finance (DeFi). However, several elements are reminiscent of the craze around Terra (LUNA), before its collapse.
According to data from the DefiLlama site, Tron (TRX) is now the 3rd largest decentralized finance (DeFi) blockchain in terms of total value locked (TVL). This TVL is currently around 6 billion dollars and has increased by 50% in the space of a month.
USDD, the new algorithmic stablecoin in the ecosystem, is no stranger to this growth. Indeed, it is possible to generate more than 20% return with it, by putting it as collateral on the JustLend protocol.
JustLend is the main application of this ecosystem and allows to carry out loans and loans in the way of Aave (AAVE). Moreover, the protocol alone capitalizes 50% of Tron’s TVL in DeFi.
As a feeling of deja vu an algorithmic stablecoin and 20% returns obviously remind us of the defunct UST on the Terra blockchain (LUNA) with the Anchor protocol. Moreover, these returns are mainly generated by liquidity mining, that is to say financial incentives to get us to deposit our liquidity.
As shown in the illustration above, while the provision of USDD is only supposed to offer 3.31% annual returns, the additional incentives bring these to 23.54%. We can therefore legitimately wonder what will happen when these incentives tend to diminish, as they did on Anchor, some time before the collapse of Terra.
Moreover, there is no guarantee that the USDD would be stronger than the UST in the event of a loss of peg, since its operation also includes a very similar arbitrage system. An arbitration that had failed to play its role in the face of speculation during the fall of the UST.
Nonetheless, it’s worth noting that investors seem to be keeping a cautious approach at the moment. Indeed, of the 3.2 billion dollars deposited on JustLend, the amounts borrowed represent only 10% of this sum, which implies a measured risk taking.
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An ecosystem that is altogether limited in its offer
If it is possible to compare the risks of the USDD to the UST, it is however necessary to put things into perspective. The Tron blockchain is certainly 3ᵉ, but its TVL is 5 times lower than that experienced by Terra on its April highs. For its part, Ethereum (ETH) remains far ahead with 72 billion dollars.
Still according to DefiLlama, the ecosystem founded by Justin Sun only has 8 different applications and the current performance does not bode well for long-term sustainability, especially given the current market situation.
It is also worth remembering that the USDD, which gave renewed interest to this blockchain, was created by surfing on the popularity of the UST at its peak. Let’s hope he doesn’t meet the same fate. Because although the systemic consequences would probably not be so pronounced, authorities around the world would not fail to take an additional example in their regulatory discourse.
