At 3 a.m., I stared at the USDD balance in my wallet, feeling a bit stunned. Just twenty minutes ago, I was immersed in the joy of "perfect arbitrage"—buying on one platform at $0.985, planning to sell on another at $1, earning a 1.5% profit. Just about to click withdraw, but the network suddenly acted up. At the moment the page refreshed, the USDD price had "re-anchored" at $1, and my $3,000 principal was trapped in a tiny 1% fluctuation, losing not only the profit but also paying fees. That moment made me realize how cold and ruthless the underlying game theory is behind this seemingly docile USDD.

So, what exactly is USDD?

To put it simply, it's an algorithm stablecoin. This kind of asset tries to rely on a set of financial models written into code to keep its exchange rate with the dollar firmly pegged at 1:1. But this path is completely different from traditional collateralized stablecoins like USDT.

The fundamental difference lies here: USDT is backed by real gold and cash sitting in Tether's bank vaults, where each USDT corresponds to one dollar in cash. This is called an asset-backed model. USDD, on the other hand, bets on algorithms. It doesn't rely on sufficient dollar reserves but uses a pre-set, transparent smart contract system to automatically incentivize arbitrageurs to buy and sell, forcibly pushing the price back to $1.

How does it do that? The secret lies with the arbitrageurs. When USDD drops to $0.98, arbitrageurs see profit opportunities and rush in to buy; when it rises to $1.02, they scramble to sell. Between these buy and sell actions, the algorithm stablecoin is continuously nudged back to the middle point by countless invisible hands. This logic sounds elegant, but risks are hidden here—once market participants lose confidence in this mechanism, arbitrageurs withdraw, and the entire system could collapse. My experience that early morning is, to some extent, a microcosm of this fragility: market sentiment fluctuations, liquidity shortages, increased price volatility, and ultimately, ordinary investors becoming the bagholders.