Decentralized finance (DeFi) stablecoin issuer, Usual, announced a significant update to its USD0++ protocol on January 9th. The update introduces dual exit mechanisms aimed at enhancing the long-term sustainability of the token.
These changes are part of a broader strategy to align the staked stablecoin with Usual’s vision of transforming USD0++ into a bond-like financial instrument backed by real-world revenue streams.
However, the announcement caused immediate market disruption, with USD0++ dropping to as low as $0.89 before stabilizing around $0.92 – 8% below its $1 peg.
The introduction of the dual exit system has left users scrambling to adapt to the new redemption options, facing a conditional or an unconditional exit, as well as abrupt changes to the official documentation regarding the staked stablecoin’s floor price.
Stani Kulechov, founder of Aave, commented on the development in a post, stating that this is another example of “how things can go wrong with fully hardcoded and immutable price feeds.”
The dual exit mechanism was introduced on January 9th, providing users with a “conditional exit” option, allowing for 1:1 redemption at the $1 peg. However, users must forfeit a portion of accrued rewards, effectively penalizing early withdrawals.
The other option is the “unconditional exit,” which offers an immediate cash-out at a floor price currently set at $0.87 but will gradually rise to $1 over four years.
The change in direction by the DeFi stablecoin issuer was accompanied by an alteration of the protocol’s official documentation, which has been described by one user as “fraud.”
Cointelegraph reached out to Usual for comments on community concerns but received no response.
The updated four-year vision and changes to redemption mechanisms triggered a market fallout, resulting in severe volatility. The new floor price of $0.87, down from $0.9995, according to one user’s post, caused liquidity providers on platforms like Curve Finance and Pendle to experience sudden shifts. This resulted in hundreds of millions of USD0++ leaving DeFi, potentially leading to multimillion-dollar liquidations.
According to the announcement, Usual’s decentralized autonomous organization will cover any potential bad debt in non-migrable markets up to the current amount.
USD0++ is the staked version of USD0, a stablecoin designed for stability and liquidity. It is fully backed by real-world assets such as US Treasury bills and is primarily used as a collateralized, dollar-pegged token.
The staked version of USD0 functions as a bond-like financial instrument, where users lock USD0 into USD0++ to earn interest (yield) through emissions of the protocol’s native token, USUAL.
However, USD0++ comes with the trade-off of a four-year lock-up period that can fluctuate based on redemption mechanisms and is not immediately accessible without incurring penalties.