Depegging Drama: Usual Protocol’s USD0++ Loses Parity Amid Controversy

The cryptocurrency market witnessed a significant event on January 9, as USD0++, a liquid staking derivative of USD0, depegged from its intended value of $1. The coin’s value plummeted to $0.89, sparking widespread panic and losses among users. This unexpected turn of events has raised concerns about the stability of decentralized finance (DeFi) protocols and the risks associated with stablecoin issuance.

Understanding USD0++: A Unique Stablecoin

USD0++ is not your average stablecoin. It’s a liquid staking derivative of USD0, which is fully pegged to the US dollar and backed by US Treasury bills. USD0++ works more like a bond, where users stake USD0 to receive rewards in the form of T-bill yields and the protocol’s native token, USUAL. However, the catch is that the money is locked for four years, making it a long-term investment.

The Controversy Unfolds

The issue began when Usual Protocol altered the redemption mechanism of USD0++. Previously, users could redeem USD0++ at a 1:1 ratio with USD0. However, the update introduced an alternative redemption mechanism set at a floor price of $0.87, valuing the long-term bond at a discount. This sudden change caught many users off guard, leading to large liquidations and shifts in liquidity on Curve Finance and Pendle.

Usual Protocol’s Response

In an effort to mitigate the damage, Usual Protocol has announced several measures. The protocol will activate a “revenue switch” on January 13, sharing earnings from real-world assets and operations with the community. This move is expected to raise returns over 50% annually, generating around $5 million in monthly revenue. Additionally, the protocol will introduce a “1:1 Early Unstaking” feature, allowing users to claim USD0++ at the $1 peg, but with a penalty of surrendering their rewards.

Criticism and Concerns

The update has been met with criticism from key figures in the crypto space. Stani Kulechov, Aave founder, pointed out that the update exposes the risk of hardcoded price feeds. Michael Egorov, Curve Finance’s founder, expected the discount on USD0++ due to its bond-like nature, but conceded that the sudden change caught many unprepared. The governance process has also come under fire, as the owners of USD0++ were not given a say in the vote.

Impact on USUAL Token

The controversy has taken a toll on USUAL, the native token of the protocol. In the last 24 hours, it has lost 18.7% of its value. Usual Protocol now faces the daunting task of rebuilding trust and stabilizing its ecosystem. The team’s response to the concerns will be crucial in defining its future in the competitive DeFi space.

Conclusion

The depegging of USD0++ serves as a reminder of the risks and complexities associated with DeFi protocols. As the cryptocurrency market continues to evolve, it’s essential for protocols to prioritize transparency, governance, and community involvement. The fate of Usual Protocol hangs in the balance, and its response to the controversy will be closely watched by the crypto community.

Source: Thenewscrypto.com

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