Stablecoin issuer ‘Usual’ faces sell-off after redemption update

Usual, a decentralized finance (DeFi) stablecoin issuer, unveiled a major update to its USD0++ protocol on Jan. 9, introducing dual exit mechanisms designed to improve the long-term sustainability of the token.

The changes are part of a broader strategy to align the staked stablecoin with its vision to transform USD0++ into a bond-like financial instrument backed by real-world revenue streams.

However, the announcement caused immediate market disruption, with USD0++ dropping as low as $0.89 before stabilizing around $0.92 — 8% below its $1 peg.

The dual exit system has left users scrambling to adapt to the new redemption options, facing a conditional or an unconditional exit and abrupt changes to the official documentation on the staked stablecoin’s floor price.

Stani Kulechov, founder of Aave, commented on the development in an X post, stating that this is another example of “how things can go wrong with fully hardcoded and immutable price feeds.”

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Dual exit mechanism: A rock and a hard place

The dual exit mechanism was introduced on Jan. 9 as usual and provides users with a “conditional exit,” which allows 1:1 redemption at the $1 peg but requires users to 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, allegedly described by one X user as “fraud.”

Cointelegraph reached out for comments from Usual on community concerns but received no response. 

Related: Agora, Galaxy complete AUSD stablecoin’s first live transaction

Market fallout

The updated four-year vision and changes to redemption mechanisms triggered a market fallout resulting in severe volatility, with its new floor price of $0.87 — down from $0.9995, according to one X user’s post.

Liquidity providers on platforms such as Curve Finance and Pendle allegedly experienced sudden shifts, resulting in hundreds of millions of USD0++ leaving DeFi, potentially sparking 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.”

Related: Philippine banks collaborate to launch PHPX stablecoin on Hedera

USD0 vs. USD0++

USD0++ is the staked version of USD0, a stablecoin designed for stability and liquidity, fully backed by real-world assets like US Treasury bills, and purposed for primary use as a collateralized, dollar-pegged token.

The staked version of USD0 functions as a bond-like financial instrument where users lock USD0 into USD0++ — earning 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 is liable to fluctuate based on redemption mechanisms and is not immediately available without incurring penalties.

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