What to know:
- An unexpected update to Usual Protocol’s USD0++ redemption mechanism sent its staked stablecoin briefly below $0.90 and caused its governance token, USUAL, to plunge 17% before partially recovering.
- Critics said the new “dual-path exit” feature, which allows early unstaking at a discounted rate, undermines the $1 peg and disrupted DeFi pools, catching investors off-guard.
- The Usual team said the change was communicated in advance and apologized for insufficient clarity.
Recently, there’s been a stir within the community of Usual Protocol, an emerging player in the decentralized finance (DeFi) sector that has experienced significant growth recently. The commotion started on Friday when a change in the protocol’s yield-generating token led to a sell-off on secondary markets.
In the midst of the chaos, the value of the USD0++ token linked to the locked-up (or staked) version of the $1-backed stablecoin USD0 on the decentralized marketplace Curve dropped momentarily below 90 cents from $1. The governance token USUAL experienced a significant drop of up to 17% throughout the day, but managed to recoup some of these losses later on.
As an analyst, I find myself examining the recent market turbulence, which appears to have been triggered by the modification in the redemption process of the USD0++ token, a change announced by the team on Thursday. This unexpected adjustment seemed to take both investors and liquidity providers unawares, leading to the selloff we’ve witnessed.
Essentially, USD0 is supported by short-term government bonds to maintain its value at $1. Stakers on the Usual platform receive USD0++, which carries a four-year holding restriction. This means that investors are tying up their funds without the option for immediate withdrawal, but they earn rewards in the form of both the protocol’s USD0 and USUAL tokens. The influx of yield farmers has significantly boosted the total value locked (TVL), a significant DeFi metric, to $1.87 billion this week, up from less than $300 million in October.
relinquishing some of the rewards earned, which could potentially impact the 1:1 exchange rate.
Users of Decentralized Finance (DeFi) criticized the sudden introduction due to the unforeseen alteration in design. This change led to the predefined value of some tokens being fixed at $1 within certain liquidity pools, which resulted in chaos among borrowers and those providing liquidity.
In a recent post, DeFi analyst Ignas remarked, “Did they let unscrupulous traders jump in with equal value and then pull out the rug from under the USD0++?” Translated, he implied that they intentionally set up the largest USD0/USD0++ pool on Curve, fully aware that USD0++ should not trade at a 1:1 ratio.
a peg represents the rationale behind why two dissimilar things can be exchanged mutually.
As an analyst, I want to share that the Usual team previously announced a design modification involving the early unstaking mechanism, effective from October. Additionally, starting on Monday, the revenue switch within the protocol will be activated and earnings generated by the protocol will begin to be distributed to those who stake their USUALx tokens for long-term holding.
The issue surrounding USD0++ is due to a lack of clarity about the system’s workings and insufficient explanation, which we regret. We will strive to keep our communication clear and provide open information to our users going forward.
In simpler terms, this episode serves as a reminder for cryptocurrency investors about the possible dangers associated with Decentralized Finance (DeFi) offerings that attract users with high returns through tokens, incentives, and reward systems.
Users who are venturing into risky endeavors should understand clearly the established rules and have faith that these rules won’t fluctuate unexpectedly, as such uncertainty could trigger market chaos, as pointed out by Rob Hadick, general partner at venture capital firm Dragonfly. It’s fortunate that this situation unfolded now, allowing us to address potential risks to the Decentralized Finance (DeFi) ecosystem before it grows larger in scale.
Despite this, USD0 recently exchanged hands at approximately 0.91 US Dollars within the Curve pool. Simultaneously, the total value locked in the protocol, an essential metric for DeFi, fell below a value of 1.6 billion US Dollars.
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2025-01-11 01:40