Usual Protocol, a decentralized stablecoin issuer, has warned its users about short-term volatility in its USD0 stablecoin.
While the protocol itself remains secure, USD0 briefly dropped to $0.99, which was said to be due to transactions in secondary markets.
The Reason for the Deviation is a Single Investor
Usual Protocol announced that this deviation in USD0 was due to the actions of a single large investor (whale). It stated that there was no disruption in the operation of the protocol and that there was no other stress or deleveraging process.
Usual Protocol made the following statement on social media platform X:
“This was the first major stress test of the USD0 peg. Within a few hours, more than the total locked value (TVL) of GHO was bought back; however, it was business as usual for us. We will continue to work on making our processes more efficient and will have exciting updates coming soon.”
USD0 Has a More Diversified Collateral Structure
This short-term divergence in USD0 is reminiscent of the crash of Terra’s UST stablecoin in 2022, as it was backed by LUNA tokens. However, USD0 offers a different approach to this model, with a more diversified collateral structure based on cash-like assets.
USD0 fell to $0.99 before quickly recovering to $1. Prior to the incident, USD0 was showing stability closer to $1 compared to more widely used major stablecoins. Additionally, USD0 only allows redemption to certain pre-listed projects via smart contracts to prevent the risk of instability.