On January 9, Usual’s stablecoin, USD0++, was suddenly released lost It is pegged to the US dollar 1:1 at around US$0.937, with just one USD0++ token able to be exchanged for less than the expected amount of US$1. The sudden loss of stability exacerbates a difficult start to the year that began with the Usual token, once a market favorite, losing momentum.
The price of the token has already dropped by more than 30% within a week. Usual was one of the eye-catching stablecoin projects to emerge in 2024, launching on Binance at the end of 2024 with great market performance. It has the support of the government background of French MP Pierre Pearson and the popular launch platform Binance.
Stablecoin markets saw a boom in 2024, with at least 23 stablecoin projects receiving significant funding ranging from $2 million to $45 million in the second half of the year.
How did the market react to losing USD0++ to the 1:1 peg?
Cryptocurrency market analysts were quick to take to X to warn their fans about it Further decline in prices in the future. The question everyone is asking now is whether USD0++ is about to become another UST.
The USD0++ stablecoin fell to a low of US$0.89 before rising to settle at around US$0.93 – around 7% below the intended peg price of US$1. the Double exit system It provides users with two recovery options:
- Conditional exit: This option allows 1:1 redemption at a peg price of $1 but requires users to forfeit a portion of the accumulated rewards.
- Unconditional exit: This option allows redemption at the current minimum price of $0.87, but is scheduled to gradually rise to $1 over four years.
The sudden changes to the protocol’s official documentation shocked many users, shaking weak hands and leaving strong ones gasping for clarity.
Stani Kulichov, founder of Aave, shared his views on the situation via A mail On X. In his statement, he emphasized the risks associated with feeding immutable prices. His comments also reflect the concerns of the broader community regarding the implications of new recovery mechanisms, stating his preference for GHO, an alternative stablecoin.
This is another example of how fixed and immutable price feeds can go wrong.
USD0++ is unpegged at $0.93 and selected USD0++ holders lock in their assets for 4 years, and the discounted illiquid value is actually $0.855.
Which has now led to the banks fleeing from Morphou,… https://t.co/ruQK6qw7EQ
– Stani (@Stani Kulichov) January 10, 2025
Other users also echoed his sentiments as the market continues to react to the shocking update with high volatility. Things got so bad that liquidity providers on platforms like Curve Finance and Pendle saw sudden shifts that resulted in hundreds of millions of dollars worth of $0++ leaving the DeFi ecosystem, sparking fears of multi-million dollar liquidations.
In response to community concerns, Usual’s Decentralized Autonomous Organization (DAO) announced plans to cover any potential bad debts in non-migrable markets up to the current amount.
Why did Usual settle at $0.87?
There are two possible theories as to why the official announcement set the unconditional exit ratio at precisely 0.87.
One of them is the profit burning theory.
Consider the possibility that the 0.87:1 ratio specified in the official announcement could result in a dividend valuation among whale holders. Since the failure of the previous 1:1 guaranteed redemption strategy, and the loss of the formal guarantee, large security holders are now faced with the dilemma of choosing the best option among the “short options”.
If they go for conditional redemption, investors need to return part of their subsequent profits to the project. The problem is that the details of this profit withdrawal have not been officially disclosed.
Conversely, if they accept the unconditional refund method, the worst-case scenario only guarantees $0.87, with the remaining $0.13 becoming the name of the game.
Naturally, when either exit method offers higher returns, the more profitable method comes out on top. A well-designed mechanism should give users the opportunity to choose rather than take sides. As such, the $0.13 gap likely means that the administrator has not yet revealed what portion of the profits should be burned, allowing users to choose between the two methods.
From the user’s perspective, if they have to pay a guaranteed cost of $0.13 later, they might as well sell at the current associated price (currently around $0.94). USD0++ would then revert to its economic core as a bond, with $0.13 representing the discounted portion and $0.87 reflecting its intrinsic value.
The other is the final result theory of liquidation.
Before the update, the Usual mechanism allowed many large holders to safely take positions and obtain almost risk-free returns. This increases leverage and capital efficiency through lending protocols like Morpho.
Typically, these users engaging in circular lending collateralize USD0++, borrow a certain amount of USDC, then exchange that USDC for USD0++, and then start a new round of circular lending. These users, who benefited from revolving lending, provided Usual with a significant amount of Total Value of Income (TVL), continuously upgrading the system. However, there is a filter line behind the TVL “perpetual motion machine”.
In the Morpho protocol, the liquidation line for USD0 is determined by the loan-to-value (LLTV) ratio. LLTV is a fixed ratio, and when a user’s loan-to-value (LTV) exceeds LLTV, his position is exposed to liquidation risk. At this time, Morpho’s liquidation line is set at 86%, just one step away from the 0.87 threshold for an official unconditional exit.
The 0.87 level in Usual’s official announcement is just above Morpho’s liquidation line of 0.86. It can be likened to the final barrier placed by the administrator to prevent the risk of systemic liquidation.
The new update means that many loans are now above the liquidation threshold. The situation is exacerbated by a crypto revelation, which leads to a migration of suppliers and a significant rise in borrowing rates.
Some users have Named For on-chain hedging and liquidity buffers to mitigate these risks, emphasizing the importance of risk management in DeFi.
Bondholders are awaiting more news next week
There is still a lot of panic surrounding USD0++ in the market, but the majority of people have taken a cautious approach, holding their positions and waiting to see what happens. A reasonable market value for USD0++ is around 0.94, but all eyes are on the official channels where people expect to hear detailed information about how the “unconditional exit” will be burned and how much profits will be deducted next week.
If the worst happens and Usual doesn’t burn the expected 13 pips next week and instead chooses to burn 0.5% of USUAL, USD0++ could quickly be re-pegged at around 0.995. In short, the USD0++ price repeg depends on important details that are expected to be announced next week.
Regardless of how the details of the final mechanism are determined, UsualX and USUAL token holders are expected to benefit. The exit method will lower the USUAL/USD0++ TVL, causing the price of the USUAL token to rise.
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