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"Risk Free" 50% Yield on Tron Is Not What You Think

Wed, 12/14/2022 - 10:14
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Arman Shirinyan
Massive yield offered by Tron DAO is not risk-free
"Risk Free" 50% Yield on Tron Is Not What You Think
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Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of U.Today. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.

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Algorithmic stablecoins use a variety of market and blockchain mechanisms for regulating and moving assets to the $1 threshold. However, offering extremely high yields for bringing more liquidity to the network might not be the best solution for 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 provided liquidity, USDD is not gaining a foothold at $1, and the liquidity injected by Sun is not enough. With the support of users, it will be possible to drag the infamous stablecoin back to a comfortable price level, but the increased outflows from the market will most likely cause a further downfall, and the need for additional funding will occur 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.

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Whenever such a high yield is offered, investors should be cautious: a return in the form of a stablecoin might be worth far 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.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.

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