What monetary policies will the TDR adopt to maintain the value of USDD?

1. The goal of monetary policies is to maintain USDD’s price stability and drive the growth of the TRON ecosystem.

  • Just like any central bank, the TDR, the central bank at phase 1.0 of USDD, adopts monetary policies to maintain its price stability and spur growth in the TRON ecosystem.

  • It is not like what some have argued, that the TDR’s monetary policies are profit-oriented, for such action runs against the TDR’s founding mission to guide and regulate USDD. Nevertheless, rational investors are advised not to take the TDR’s monetary policies as their investment guide.

2. Monetary policy instrument №1: setting interest rate

  • One of the main monetary policy tools for central banks worldwide, setting interest rates is a mechanism often used to regulate the supply and demand of currencies and loans. Similarly, the TDR works with its partner institutions and protocols to set USDD’s benchmark interest rates and has the power to adjust the rate at any time based on market conditions.

  • Now, the initial benchmark interest rate for USDD is 30% and is slightly higher on platforms that recently listed USDD, all subsidized by the TDR to acquire new users and drive up its adoption. In the early stages of USDD, its interest rate will stay at a higher level than those of the US dollar and USDT/USDC. The rationale behind such a decision is that the TRON ecosystem is similar to some emerging economies such as China, Vietnam, and India, which want to attract foreign capital with higher interest rates to grow their economies.

  • Interests for USDD holders are paid out in USDD issued by the TDR and credited to their accounts. USDD holders have full control over USDD in their wallets. Users staking or lending USDD enter the respective smart contracts on different protocols, to which the TDR has no access. This dispels the misinformation claimed by some that USDD is a Ponzi Scheme and that the TDR convinces people to invest money by promising unreasonable high returns.

3. Monetary policy instrument №2: open market operations.

  • Open market operations (OMO) refer to a central bank openly buying or selling bonds in the secondary market. These central banks are essentially trading base money for bonds in the secondary market: they deposit base money through purchases and withdraw it through sales, thereby adjusting the supply and demand of the base money and stabilizing its value.

  • The TDR adopts a mechanism that functions similarly to OMO. Through buying or selling USDD and reserve assets, including TRX, BTC, USDT, and USDC on CEXs or DEXs, it manages to keep USDD’s price stable. The TDR will announce each of its OMO publicly to the market on its Twitter account (@trondaoreserve) to positively guide the market perception.

  • It is worth noting that the core purpose of the TDR’s OMO has been and will always be to maintain USDD’s price stability rather than profit from trading. The proceeds generated from OMO, if any, will go to the reserves for efforts to stabilize USDD’s price and further the growth of TRON’s ecosystem, as echoed by the 1 trillion yuan ($158 billion) transfer from the People’s Bank of China to the Chinese Central Government to help finance fiscal spending this March.

4. Monetary policy instrument №3: window guidance.

  • In times of severe market turbulence, the TDR will partner with institutions such as JustLend and CEXs to limit the amount of USDD and TRX lent or even temporarily pause the lending of USDD and TRX to crack down on malicious short-sellers.

5. Monetary policy instrument №4: minting-burning mechanism of TRX and USDD.

  • The minting-burning mechanism between TRX and USDD also effectively guarantees USDD’s stability. Depending on the situation, the TDR will achieve this by employing methods such as enabling or disabling the minting process, adjusting the mint-burn ratio, and imposing upper limits on daily minting and burning activities, all carried out in a decentralized manner.

6. On top of the above monetary policy instruments, the TDR will also explore more use cases of USDD to maintain its value.

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