Author: Ray's New World, BlockBeats
2024 has become a big year for stablecoin projects. More and more innovative new stablecoin projects have emerged in the market. In the second half of last year alone, at least 23 stablecoin projects received high financing ranging from 2 million to 45 million. In addition to Ethena, which has surpassed DAI's market share with USDe, Usual has become another eye-catching stablecoin project. Not only is it endorsed by the government background of French Congressman Pierre Person, but Usual was first launched on Binance at the end of 2024, and its performance in the market is obvious to all.
However, Usual, once a popular token in the market, not only saw its token Usual fall by more than 30% in a week, but its token USD0++ also instantly decoupled from the anchor to around $0.946 this morning. One USD0++ token can only be exchanged for about $0.94. Currently, the proportion of USD0++ in the USD0/USD0++ pool on Curve is tilted to 90.75%.
USD0++ depegging, source: Curve
What exactly happened to Usual, and why did USD0++ suddenly crash?
Panic escape caused by an announcement
The depegging of USD0++ started with an official announcement from Usual on the morning of January 10. In the announcement, Usual officially changed the redemption conditions of USD0++, from the original 1:1 redemption to a new dual withdrawal method. One of the methods is conditional withdrawal, and users can still withdraw USD0++ in a 1:1 manner, but they need to burn part of the earnings when withdrawing. The other method is unconditional withdrawal, but unlike the previous deterministic 1:1, the official minimum withdrawal ratio is 0.87:1, and it will gradually return to the anchor of 1 US dollar over time.
Usual announced two ways to exit. Image source: Usual official website
Usual's announcement spread quickly in the usual community. As the new USD0++ redemption rules fermented, panic began to spread from big whales to retail investors at the bottom. In this game of "leopard chasing people", users who run first always suffer less losses than those who are a beat slower. After the announcement was released today, retail investors also cut their losses and fled under the spread of panic caused by big investors. Not only did the outflow of USD0 begin to accelerate, but the USD0/USD0++ in Curve has been "smashed through". As a large number of USD0++ were redeemed, the proportion of USD0 also dropped to an astonishing 8.18%.
Image source: Curve
Let's go back to the time when USUAL was launched on Binance. Initially, the redemption mechanism set by Usual officials last year allowed 1:1 redemption. Unlike Ethena, which is more To B-oriented, Usual's products are more To C-oriented and have attracted many large investors. With Usual's official 1:1 full redemption guarantee, many large investors will not only increase their positions, but also continue to increase their leverage and capital efficiency through circular lending and other methods. Because this is essentially equivalent to a risk-free return given by Usual to all users. This way of handling funds is feasible under the premise that Usual officials do not change the rules of the game, which is equivalent to large investors being able to obtain the benefits of mining coins USUAL without paying any extra opportunity costs.
At the same time, the price of USUAL has also been rising. The higher price has led to a surge in the APY on paper, which has attracted more users to pledge. Thus, a positive flywheel is formed under the pull of USUAL. Higher prices attract too much TVL, and more TVL will further push up the price, and so on. Usual's high control over the mining coins and the paper APY to attract TVL are almost an open conspiracy. And small retail investors can also follow the big investors to drink soup under Usual's "left foot on the right foot" model. Therefore, Usual's positive flywheel quickly started to turn.
Usual’s super high APY, source: Usual official website
The most critical issue of such a mechanism is also the exit issue. For long-term holders, USUAL will link the issuance of additional tokens to the income of the overall protocol. The higher the TVL, the less additional USUAL will be issued, forming a deflation mechanism. The supply of USUAL has been reduced on the supply side, artificially creating a certain degree of scarcity. The team has not neglected the mechanism design for USUAL. After staking USUAL tokens, USUALx will be obtained. These holders can obtain 10% of the total amount of newly minted USUAL every day to reward early participants in the ecosystem. At the same time, when USD0++ is redeemed in advance, 33% of the destroyed USUAL will be allocated to USUALx holders, forming an additional source of income. So for short-term holders, one is to choose to buy USUAL and run away with the bucket, and the other is to continue holding USUAL and staking to obtain more income. The question is, should we choose "four ounces to move a thousand pounds" or "unplug the network cable and run away"? Under the premise of the continuous increase in the price of the currency, running away will only get the current USUAL income, while if you choose to stand on the side of time, you will get "staking income + USUAL token increase + additional income". The prosperity of Usual is constantly pulled in the economic game between short-term holders and long-term holders.
However, all gifts from fate actually have a price tag. Usual officials hinted long ago that USD0++ would require an exit fee. Almost all Usual participants knew this tacitly, and were betting on who would be the last one left before the building collapsed.
Why is it the "mysterious" 0.87?
So, why did the authorities set the unconditional withdrawal ratio to 0.87 in today's announcement? How did the authorities consider setting this precise number of 0.87?
Profit Burning Theory
The 0.87:1 ratio set in the official announcement caused a trade-off in the interests of big investors. Since the previous 1:1 guaranteed redemption strategy has become invalid and has lost the official guarantee, the problem that big investors now need to face is how to choose the general among the "dwarfs". If the conditional redemption method is adopted, then the investor needs to return part of the subsequent profits to the project party, but the official has not disclosed the details of this part of the profit withdrawal. On the contrary, if the unconditional redemption method is accepted, the worst case can only guarantee a minimum of 0.87, and this 0.13 part has become the core of the game. When any of the two exit methods has a higher return, the funds will of course vote for the exit method with the highest return, but a good mechanism design should allow users to have room to choose from it instead of "one-sided". Therefore, the current 0.13 space is likely to be the part of the official profit that needs to be burned that has not yet been announced. Let users choose between the two methods. So from the user's perspective, if you have to pay a guaranteed cost of 0.13 later, it is better to sell it at the current unpegged price (currently maintained at around 0.94). USD0++ will also take off its previous packaging and return to its economic essence of a bond. 0.13 is the discount part, and 0.87 is the embodiment of its own value.
Liquidation support theory
Because Usual previously provided users with a mechanism of 1:1 anchoring USD0++, many large users can safely take positions to obtain almost risk-free returns, and further increase leverage and expand capital utilization efficiency through lending protocols such as Morpho. Usually, these users who start revolving loans will pledge their USD0++, borrow a certain amount of USDC, and then use this part of USDC to exchange for USD0++, and then start a new round of circulation. This type of users who are keen on revolving loans have provided Usual with considerable TVL, and they are constantly taking off with their left foot on the right foot, but there is also a liquidation line behind the TVL "perpetual motion machine".
In the Morpho protocol, the liquidation line of USD0 is determined by the liquidation loan-to-value ratio (LLTV). LLTV is a fixed ratio. When the user's loan-to-value ratio (LTV) exceeds LLTV, the user's position will face the risk of liquidation. The current liquidation line of Morpho is 86%, which is only one step away from the official unconditional exit of 0.87.
In Morpho, the liquidation line of USD0++ is 86%. Source: Morpho
The 0.87 in Usual’s official announcement is just above Morpho’s 0.86 liquidation line. It can be said that it is the last barrier set by the authorities to prevent the occurrence of systemic liquidation risks. The setting of 0.87 is the final support, which maintains the dignity of a project for users.
But this is also the reason why many big investors are leaving the market and waiting. There is a 13-point space in the middle for free fluctuations, and more people will interpret it as that as long as the final chain liquidation does not occur, it will eventually be allowed to "free fall".
What are the long-term and short-term impacts after unmooring?
So how will USD0++ end after it is unpegged? At present, the panic sentiment about USD0++ in the market has not ended. Most people are adhering to the view of doing a good job of risk control, keeping their troops on the sidelines, and keeping a wait-and-see attitude. The market's reasonable value for USD0++ is stable at around 0.94, and this consensus is based on the situation after the temporary announcement. The official has not yet disclosed in detail how the "unconditional exit" in the exit mechanism will be burned and how much income will be deducted. It is expected that further details will be announced next week. To put it in an extreme way, if the official will not burn 0.5% of USUAL next week instead of the 13-point space predicted by the market, then USD0++ will also quickly return to the anchor level of 0.995. The situation of USD0++ returning to the anchor will depend on the details of the burning after the official announcement of USUAL next week.
Regardless of how the final mechanism details are decided, it will benefit the holders of the UsualX and USUAL tokens. Usual officials have reduced the benefits of USD0++ through the design of a new exit method. Although the method of triggering market exit is too drastic, it will cause the TVL of USUAL/USD0++ to decline, thereby increasing the price of the USUAL token. After the burning begins, USUAL will be consumed, thereby obtaining further token value capture, and the price will therefore be stronger. It can also be seen from the mechanism design of Usual that USUAL is a key link in the design of the protocol flywheel. Since the high point of 1.6, USUAL has fallen by about 58%, and USUAL needs to take off again to make the flywheel turn again.
The price of USUAL token surged by 58%. Source: tradingview
What is ridiculous is that although a large number of arbitrageurs have contributed a large amount of TVL to Usual through Morpho's revolving loans, the official bottom line of 0.87 is more like a warning to revolving lenders who are on the 0.86 liquidation line.
Now Usual has officially removed the "privilege" of the previous 1:1 rigid redemption and corrected the previous "should not have" mechanism. As for the re-anchoring of USD0++, the entire market is also waiting for Usual's official announcement next week, when Blockbeats will continue to follow up.
