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Controversial Protocol Update Sparks Market Volatility
Usual Money's recent protocol update, introduced on January 9, 2025, has sent shockwaves through the decentralized finance (DeFi) ecosystem. The update unveiled a dual exit mechanism for its staked USD0 stablecoin (USD0++), a move aimed at redefining the asset as a bond-like instrument backed by real-world revenue streams.
The two-pronged system includes a conditional exit, allowing 1:1 redemption at the cost of forfeiting accrued rewards, and an unconditional exit, enabling immediate withdrawal at a manually set floor price—currently $0.87—rising to $1 over the next four years. While innovative in its intent, the changes have triggered intense market reactions and widespread criticism.
Following the update, USD0++ suffered significant price volatility. Initially, it plunged to $0.89 before stabilizing at $0.92, marking an 8% deviation from its $1 peg. By January 10, 2025, decentralized exchanges reported further declines, with prices falling to $0.915. The instability extended to major DeFi platforms like Curve Finance, where large-scale sell-offs disrupted liquidity pools, creating a 92% imbalance in Curve's largest USD0/USD0++ pool. This sudden dislocation exacerbated liquidations across the DeFi ecosystem, compounding financial strain for users.
Adding fuel to the fire, Usual Money altered its whitepaper and protocol documentation without prior notice, introducing the $0.87 floor price retrospectively. The move sparked outrage within the community, as critics accused the protocol of locking 13% of principal investments without due warning.
A notable comment from a community member reflected these frustrations: “They let users mint/buy USD0++ at $1… and then magically implement a new hardcoded $0.87 floor, effectively locking billions.” Aave founder Stani Kulechov also weighed in, cautioning against the risks of immutable price feeds paired with fully hardcoded mechanisms.
However, not all reactions were negative. Supporters argued that the bond-like framework, while abrupt in its rollout, enhances USD0++’s long-term stability. Proponents emphasized the stablecoin's backing by U.S. Treasury Bills, a factor they believe underpins its resilience. Financial metrics suggest the theoretical fair value of USD0++ stands at $0.855 today, assuming a 4% annual risk-free return over its four-year lock-up period.
Yet, critics maintain that the lack of transparent communication undermines trust in the protocol.
To address potential fallout, Usual's DAO has committed to covering bad debt in non-migrable markets, though specifics remain unclear. This comes after the protocol's December 2024 expansion, which included the launch of the UsualM token—backed by U.S. Treasury derivatives—and a $10 million funding round supported by Binance and Kraken.
Despite these efforts, the controversy surrounding the dual exit mechanism underscores broader challenges within DeFi: balancing innovation with user trust. As Usual Money navigates this turbulent period, its actions could set critical precedents for the future management of staked stablecoins.
This article has been refined and enhanced by ChatGPT.
