An unexpected update to the USD0++ redemption mechanism of Usual Protocol, the DeFi coin popularized by the Binance listing in November 2024, briefly dropped the staked stablecoin below $0.90. This caused the management token USUAL to fall 17% before partially recovering. Critics said the new “dual-track exit” feature, which allows early exit at a discounted price, weakened the $1 peg and caught investors off guard by disrupting DeFi pools. The Usual team said the change was pre-announced and apologized for the lack of clarity. Here are all the details…
Sale triggered for DeFi coin
Usual Protocol, a DeFi protocol that has enjoyed a remarkable run-up in recent months, faced community backlash on Friday after a change to the protocol’s yield-generating token triggered a sell-off in secondary markets. Amid the turmoil, the USD0++ token, which represents a locked – or staked – version of the protocol’s $1 stablecoin USD0, briefly fell below 90 cents at $1 on the decentralized marketplace Curve. USUAL, the protocol’s governance token, fell as much as 17% on the day before recovering some of the losses.
The sell-off was caused by a change in the redemption mechanism of the USD0++ token, which was introduced by the team on Thursday and caught investors and liquidity providers off guard. By design, USD0 is backed by short-term government bonds to keep its price at $1. Stakers in Usual receive USD0++, which comes with a four-year lockup period, meaning investors lock their funds before they can redeem their money for rewards earned in the form of the protocol’s USD0 and USUAL tokens. The influx of yield farmers sent the protocol’s total locked value (TVL), a key metric of DeFi, skyrocketing from less than $300 million in October to $1.87 billion earlier this week.
Criticism of the protocol has poured in
However, the new feature, dubbed “dual-track exit”, will allow traders to redeem locked tokens early at or equal to the floor price of USD0.87, forgoing a portion of the rewards earned and questioning the 1:1 exchange rate. The sudden implementation caused criticism among DeFi users for changing the design without warning. In certain liquidity pools, the token’s price was hard-coded at $1, causing uproar among borrowers and liquidity providers. Leading DeFi analyst Ignas said in an X post
They let the Degen jump to 1:1 and then rug pull USD0++? They pushed for the largest USD0/USD0++ pool on Curve, knowing full well that USD0++ should not be traded at 1:1.
Patrick McKenzie, an advisor to payments firm Stripe, said
DeFi continues to learn the most important truth about pegs: a peg is a story about why two things that are not the same can be used interchangeably.
The Usual team said in a statement that the design change with the early resolution mechanism was forewarned from October. The protocol will also activate its revenue switch starting Monday and begin distributing the protocol’s earnings to governance token holders who stake their coins for the longer term (USUALx).
DeFi products pose risks
The incident is another lesson for crypto investors about the potential risks of DeFi products that lure users with high returns through token incentives and reward wheels. Rob Hadick, general partner at venture capital firm Dragonfly, said
Risk-takers need to know exactly what the rules are and be able to trust that they won’t change, otherwise it could cause panic in the market. We should be thankful that this is happening now, before the protocol becomes a risk to the wider DeFi ecosystem.
Still, USD0++ recently traded at USD0.91 on the Curve pool, while the protocol’s locked total value, a key DeFi metric, has fallen below $1.6 billion.
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