Usual Money's protocol update sparks community concern as USD0++ drops below 92 cents

Usual Money’s staked USD0 token dropped 8.5% from $1 to $0.915 via decentralized exchanges on Friday following the protocol’s dual exit update.

While Usual’s USD0 is a U.S. Treasuries-backed stablecoin, currently still pegged to $1, the liquid staked version, USD0++, operates more like a zero-coupon bond that is locked up for four years and earns holders Usual’s native utility and governance token, USUAL, at the end of the term.

“If you expect 4% annually over four years, the fair value of USD0++ today should be around $0.855. This means you’d buy it at $0.855, hold it for four years, and redeem it at $1 for a risk-free 4% return,” mytwogweis explained. “Before today’s announcement, you could redeem USD0++ 1:1. Now, that’s all changing.”

Usual Money’s original docs previously did not contain a floor price section, according to a web archive version of its site. However, the latest version now does include one, stating that “the floor is set manually (e.g., 0.87 USD0 per USD0++).” Its blog update says it offers “dual-path primary exits for USD0++ with 0.87 USD0 floor price via USUAL dAPP and 1:1 early unstaking available early next week.”

This means users have a conditional exit option to redeem USD0++ at a 1:1 ratio by giving up a portion of accrued yields. Alternatively, users can redeem at a floor price, currently set to $0.87, which will gradually increase to $1 over the next four years.

Community criticism

The USD0++ whitepaper says the token is composable, allowing for exit liquidity through the secondary market incentivized by USUAL rewards, with a fair value theoretically set at $1 as long as the yield offered by USUAL exceeds the risk-free yield. However, it warned the secondary market may still face some volatility. Beyond this, community members claim it was hard-coded to $1 on decentralized exchanges and marketed as such.

“They let users mint/buy usd0++ at $1 (no discount, 1-1 programmed) and then magically implement a new hardcoded 0.87 floor, effectively locking (i.e., evaporating) 13% of the principal for 1,500,000,000 USD,” crypto community member “olimpio” said.

“So @usualmoney team has been claiming for a few weeks that USD0++ was redeemable for 1:1 USD0 so everything was chill,” another alleged. “Today, they stopped the 1:1 redeem function without any prior announcement to trap farmers and keep their TVL.”

However, others sought to defend the protocol. “Not fair, bro. It has two sides,” May Mei responded. “1. USD0++ is essentially a bond of USD0 for 4 years. Every day, USD0++ enjoys daily yield in USUAL. The par value of USD0++ will be low and gradually increase to USD0 over the 4-year period. 2. It is true that this is somewhat sudden and unexpected for those who are unaware, but it is positive in the long term. USD0 is still a stablecoin and is backed by T-Bills.”

Following the redemption change, many holders rushed for the exits, with millions of USD0++ offloaded, causing severe imbalance in its largest USD0/USD0++ Curve pool, mytwogweis said, which swung to 92%.

In December, Usual announced it was launching an extension of M^0’s M token, called UsualM, marking the latest diversification of the stablecoin issuer’s reserves. That same month, the venture wings of crypto exchanges Binance and Kraken led a $10 million Series A funding round for Usual, with participation from Ethena, the synthetic dollar platform; Ondo, the firm specializing in real-world assets; and Echo, a decentralized crowdfunding platform founded by crypto luminary Jordan Fish (widely known as Cobie).

The Block reached out to Usual Money for comment.