From Algorithmic Stablecoin to Interest-Bearing Asset: USDD’s Upgrade Path

Throughout the evolution of the Web3 world, stablecoins have become a crucial bridge between traditional finance and the decentralized ecosystem. They not only provide investors with a safe haven against market volatility but also serve as core infrastructure for daily transactions, collateralized lending, and various DeFi activities. As of July 2025, the total supply of USDD exceeded $570 million , demonstrating continued growth in the global market.

From algorithmic stablecoins to over-collateralization

USDD (Decentralized USD) is a decentralized stablecoin originally created on the TRON blockchain and issued by the TRON DAO Reserve. Its design aims to achieve a 1:1 value peg with the US dollar through a combination of algorithms and collateral mechanisms, providing users with a reliable digital dollar alternative.

Unlike stablecoins issued by centralized institutions like USDT and USDC, USDD initially employed an algorithmic stabilization mechanism. When the market price deviates from the $1 peg, the system automatically triggers an arbitrage mechanism, restoring price equilibrium through market forces. While this design is conceptually advanced, it faces challenges in extreme market conditions, prompting USDD to evolve towards a more robust model.

In early 2025, USDD embarked on a new journey with the official launch of USDD 2.0. This upgraded stablecoin aims to build a truly trustless, censorship-free, fully decentralized, and secure stablecoin system. A key improvement lies in the introduction of an over-collateralization mechanism, meaning that all issued USDD is backed by over 100% assets. Users can mint USDD by pledging high-quality assets such as sTRX, TRX, and USDT. The collateralization ratio is typically set high to effectively mitigate stability risks brought on by market fluctuations. This mechanism significantly enhances USDD's safety margin. Once the collateralization ratio falls below a set threshold, the system automatically triggers a liquidation mechanism, selling a portion of the collateral to maintain system stability.

Innovative stabilization mechanism and multi-chain expansion strategy

Another key innovation in USDD 2.0 is the introduction of the Price Stability Module (PSM), which allows zero-slippage and zero-fee swaps between USDD and supported stablecoins (primarily USDT). PSM operates on an arbitrage mechanism: when the USDD market price is below $1, arbitrageurs can buy USDD at a low price in the market and then exchange it for USDT at a 1:1 ratio through PSM, thereby driving the USDD price back to the peg. Conversely, when the USDD price is above $1, users can exchange more USDD through PSM, increasing market supply and thus curbing price increases. This mechanism significantly enhances USDD's price stability.

In September 2025, USDD achieved another significant milestone: native deployment on the Ethereum network , integrating it into the world's largest Layer 1 ecosystem. This deployment was completed on September 8, 2025, and passed a comprehensive security audit by CertiK. To celebrate this significant progress, USDD launched a special airdrop. Holders of Ethereum-native USDD can enjoy tiered APY returns, with yields up to 12%. Users simply visit the Merkl airdrop page to claim.

Deploying on Ethereum is just the first step in USDD's multi-chain strategy. According to the official roadmap, USDD plans to further expand to other mainstream public chains, such as BNB Chain, to continuously expand its application scenarios and increase adoption, thereby driving the sustainable development of the DeFi ecosystem. This multi-chain strategy not only expands USDD's usability but also diversifies systemic risk and enhances overall resilience.

Interest-earning assets: USDD's financial innovation and income strategy

USDD's most striking innovation is its transformation from a simple stablecoin to an income-generating, interest-bearing asset. This transformation is primarily achieved through two mechanisms: the upcoming sUSDD protocol and the already launched Smart Allocator .

The sUSDD protocol is a crucial component of the USDD ecosystem, providing users with a transparent mechanism to earn interest through a decentralized savings system. As an interest-bearing product of USDD, sUSDD is designed for users who desire full on-chain control while also seeking passive appreciation of their stablecoin assets. This design not only preserves user control over their assets but also offers similar yield characteristics to traditional bank savings accounts, but built on a fully decentralized infrastructure.

In June 2025, USDD officially launched the Smart Allocator yield strategy. This innovative feature, designed with security, transparency, and sustainability at its core, aims to provide stablecoin users with robust and sustainable returns. Smart Allocator works by deploying a portion of its reserve funds to proven DeFi protocols like Aave and JustLend, converting idle assets into stable returns. Throughout this process, users' staked USDD remains untouched, and exchange stability remains intact .

All generated profits are directly distributed to USDD stakers, meaning users only need to stake on supported platforms to continuously earn on-chain returns, while complex strategies and risk management are handled behind the scenes by the USDD and JUST DAO professional teams. The advantages of this mechanism are primarily reflected in three aspects: a clear source of income , relying solely on USDD cash reserves, which avoids the potential risks associated with complex financial instruments; a dynamic investment decision-making mechanism managed by a professional team to ensure the scientific and fair nature of the strategy; and full on-chain transparency significantly enhances user trust.

Smart Allocator also employs multi-layered security measures to safeguard funds. First, it deploys funds only to rigorously audited and verified DeFi protocols. Second, it implements strict risk control parameters, including collateralization requirements, leverage limits, and liquidity thresholds. Finally, it implements fully transparent on-chain operations, allowing anyone to monitor fund flows and strategy performance in real time. This comprehensive and prudent risk management framework enables Smart Allocator to pursue returns while ensuring the safety of principal.

Security foundation and transparent governance

Security is a core design principle of USDD 2.0. All smart contracts have been rigorously audited by blockchain security firm ChainSecurity, ensuring the security and integrity of the protocol.

To ensure transparency and trustworthiness, all collateral backing USDD is held in publicly verifiable smart contracts. Users can view the contract address directly on a blockchain explorer and verify the status of funds at any time, ensuring that collateral remains intact and completely secure. This fully transparent Proof of Reserves mechanism allows anyone to verify USDD collateralization in real time, significantly enhancing market confidence.

USDD's reserve assets primarily consist of three categories: highly liquid stablecoins (such as USDT and USDC), mainstream cryptocurrencies (such as BTC, ETH, and TRX), and cash equivalents. This diversified reserve structure ensures sufficient liquidity while enhancing the robustness of the overall collateral through the use of high-value assets. According to official data, USDT still accounts for the majority of collateral in the PSM, and the rising price of TRX has also had a positive impact on the value of the reserve assets.

Future development and ecological construction

The USDD 2.0 development roadmap demonstrates the project's ambitious goals and clear plans. In the short term, the team plans to expand USDD into the BSC ecosystem, further expanding its multi-chain presence. Meanwhile, the PSM will support a wider range of stablecoins, enhancing user flexibility and accessibility. Furthermore, the system will support a wider range of crypto assets as collateral, providing users with more options.

The mid-term plan includes deepening the Smart Allocator functionality and expanding it to more public chains, increasing accessibility and revenue potential while empowering the community to play a more prominent role in governance. The team also plans to optimize the revenue distribution mechanism to ensure fair and sustainable reward distribution.

From a long-term perspective, USDD is committed to building a complete decentralized financial ecosystem, where stablecoins serve not only as a medium of exchange but also as a store of value and a yield-generating tool. This comprehensive approach has the potential to redefine the role of stablecoins in the cryptoeconomy and lay the foundation for the next generation of financial infrastructure.

Particularly noteworthy is the launch of sTRX Vault, a feature that allows users to stake TRX to improve capital efficiency and earn additional returns. This design cleverly combines staking and stablecoin functionality, providing users with more diversified asset allocation options.

Conclusion

USDD's transformation from an algorithmic stablecoin to an interest-bearing asset represents a significant trend in the cryptocurrency industry: crypto assets are evolving from simple value-representing tools to complex financial infrastructure. Through innovations such as an overcollateralization mechanism, a price stabilization module, and a smart allocator, USDD not only maintains price stability but also provides a sustainable source of income for holders.

This innovative model could redefine the role of stablecoins in the crypto ecosystem, transforming them from passive payment tools to active, interest-earning assets. For ordinary users, this means that the stablecoins they hold are no longer simply "static" assets waiting to be used, but "active" capital that can continuously create value.

In the increasingly competitive stablecoin market, USDD has carved out a unique position for itself through differentiated strategies and continuous innovation, and has also provided a valuable reference case for the development of the entire industry.