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DeFi Drama: Usual Protocol’s Change Triggers Panic, Sends USD0++ Below $1
Crypto Sell-Off Hits Usual Protocol After Sudden Change in Token Mechanism
DeFi Risk Exposed: Usual Protocol Faces Backlash After USD0++ Token Shake-Up
What Went Wrong? Usual Protocol’s New Token Mechanism Causes Market Chaos
Usual Protocol Faces Backlash After Yield Token Change Triggers Sell-Off
Usual Protocol, an emerging decentralized finance (DeFi) platform that has witnessed significant growth in recent months, faced a backlash from its community on Friday after a tweak to the protocol’s yield-generating token led to a sell-off in secondary markets.
The controversy began after the protocol’s USD0++ token, which represents a locked-up (or staked) version of its $1-pegged stablecoin USD0, briefly dropped below 90 cents from its usual $1 value on the decentralized marketplace Curve. Meanwhile, the protocol’s governance token, USUAL, dropped as much as 17% throughout the day before regaining some of the lost ground.
The sell-off was triggered by a change in the redemption mechanism of the USD0++ token, which the Usual team introduced on Thursday. This sudden adjustment caught investors and liquidity providers by surprise.
USD0 is traditionally backed by short-term government securities to maintain its $1 peg. Investors who stake on Usual receive USD0++ tokens, which are locked for a four-year period, meaning they cannot redeem them until the lock-up expires. This lock-up has allowed yield farmers to flock to the protocol, boosting its total value locked (TVL) metric from under $300 million in October to $1.87 billion earlier this week.
However, the new “dual-path exit” feature allows investors to redeem their locked tokens early at a 0.87 USD0 floor price, or at par by forfeiting part of the rewards earned, which undermined the token’s 1:1 exchange rate.
This unexpected change caused a stir among DeFi users, with critics claiming that the protocol’s design was altered without warning. The price of USD0++ token was hardcoded to $1 in certain liquidity pools, creating chaos for borrowers and liquidity providers.
“Did they just allow degens to jump in at 1:1 and then rug the USD0++?,” asked prominent DeFi analyst Ignas in an X post. “They pushed for the largest USD0/USD0++ pool on Curve knowing all well that USD0++ shouldn’t trade at 1:1.”
DeFi advisor Patrick McKenzie also commented, saying, “DeFi continues learning the most important truth about pegs: a peg is a story about why two things that are not the same are interchangeable for each other.”
In response, Usual’s team stated that the change to the early unstaking mechanism had been communicated as early as October. They also confirmed that the protocol will activate a revenue switch on Monday and begin distributing the protocol’s earnings to governance token holders who stake their coins longer-term (USUALx).
“The current situation regarding USD0++ stems from a misunderstanding of the protocol’s mechanisms along with a communication that should have been better articulated,” the statement read. “We apologize and we’ll continue to do our best to communicate transparent information to users.”
This incident serves as another reminder to crypto investors about the risks associated with DeFi products that promise high yields through token incentives and rewards flywheels.
“Users who are taking risks need to know what the exact rules are and be able to trust that they won’t change, otherwise it can result in market panic,” said Rob Hadick, general partner at venture capital firm Dragonfly. “We should be thankful this happened now, before the protocol became a risk to the broader DeFi ecosystem.”
Currently, USD0++ is trading at 0.91 USD0 in the Curve pool, while the protocol’s total value locked has dropped to below $1.6 billion.
