Massive yield offered by Tron DAO is not risk-free
Algorithmic stablecoins use a variety of market and blockchain mechanisms to regulate and move assets up to a $1 limit. However, offering extremely high yields to bring more liquidity into the network may not be the best solution to keeping a stablecoin afloat.
The 50% yield offered by Tron DAO for safeguarding various on-chain stablecoins might not be as safe as it said on the DAO’s page. Such a high yield for providing liquidity is explained by serious issues that USDD stablecoin has in keeping the $1 threshold.
Despite the liquidity provided, USDD is not reaching $1, and the liquidity provided by Sun is not sufficient. With the support of users, it will be possible to pull the infamous stablecoin back to a comfortable price level, but increased outflows from the market will most likely lead to a further decline, and additional funds will be needed once again.
Why it is not risk-free
The “risk-free” designation used by Tron DAO is accurate only from the technical side. By lending your own funds as liquidity for USDD, users are guaranteed to receive a certain percentage off of their investment in the form of the stablecoin. However, there is a downside.
Whenever such a high yield is offered, investors should be cautious: the return as a stablecoin may be much less than the initial investment due to the unpredictable nature of the market.
Practically, those who provide additional liquidity for USDD are betting on its return to the $1 threshold. In case of a further downfall, investors’ collateral will simply lose its value and will not provide any actual returns.
