Justin Sun Faces Backlash for Removing $700M in Bitcoin (BTC) as USDD's Collateral Without Tron DAO Reserve's Vote

Amid the memecoin frenzy on the Tron network, Justin Sun is facing backlash for the controversial removal of over $700 million in Bitcoin (BTC)

Bitcoin (BTC) worth over $700 million has been removed from Tron’s Decentralized USD (USDD) stablecoin collateral reserves, a move that is now raising concerns.

According to reports on Wednesday, the stablecoin’s transparency page previously listed 12,000 Bitcoin in an address, which have now been removed. The change occurred “silently” without consultation or approval from the Tron DAO Reserve, which raises questions about the stablecoin’s decentralization.

USDD is a decentralized over-collateralized stablecoin pegged to the US Dollar through TRX, which is governed by the Tron DAO Reserve. The stablecoin’s collateral is designed to be managed by the DAO, ensuring the community’s involvement in maintaining USDD’s stability.

However, the recent removal of a significant portion of Bitcoin from USDD’s collateral has sparked criticism from investors over the lack of transparency in the process. Many X users questioned the “decentralized stablecoin” narrative pushed by the Tron Foundation.

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

Moreover, Veritas Protocol alleged that this is not the first issue with USDD’s collateral. According to the post, the stablecoin “has also faced issues with its collateral, such as storing significant amounts of HTX without consulting the DAO.”

Justin Sun Responds to Criticism

Following the criticism, Justin Sun addressed users’ concerns in an X post. Tron’s founder claimed that USDD’s mechanism is “not mysterious” since it works like MakerDAO’s DAI.

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

Based on it, Sun alleges that “any collateral holder can withdraw any amount freely without anyone’s approval.” He also noted that USDD currently “has a long-term collateralization rate exceeding 300%,” which is planned to be upgraded for better capital utilization.

“Currently, USDD has a long-term collateralization rate exceeding 300%, which means that the capital utilization is not very efficient,” the TRD stated in the X post. “The TRON DAO Reserve plans to spend time upgrading USDD in the future to make it a more competitive decentralized stablecoin in the market. Remember, Tron is also a kingdom of stablecoins.”

USDD’s X account cited Sun’s response, echoing TRD’s plans to upgrade and enhance the stablecoin. Nonetheless, Bennet Tomlin, co-host of Crypto Critic Pod, questioned Tron founder’s statement.

According to Tomlin, Sun’s description does not match the issuance process outlined on USDD’s page. Furthermore, he stated that, based on the whitepaper, the removed Bitcoin is “explicitly supposed to be managed by the TRON DAO Reserve (…), not whatever collateral holders Sun is imagining.”

At the time of writing, Sun has not responded to the apparent discrepancies raised by Tomlin.

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