- DeFi Usual protocol reduces the fixed price of its bond-like USD0++ token.
- Many DeFi applications treated USD0 and its bond version as having equal value.
- Investors criticized Usual’s communication regarding the change.
Usual Labs, the company behind the Usual stablecoin protocol, changed the code of the bonds backing its $0 stablecoin on Thursday, throwing several applications that integrated the token into chaos.
The usual code change reduced the fixed price of the bond version of USD0, called USD0++, from $0.995 to $0.87.
Although the protocol team claims the change was previously announced and had been planned since October, the move has blindsided DeFi investors, users, and developers who say they were unprepared for the change.
On the Usual Discord server, a popular crypto messaging app, investors criticized the communication around the change.
“The fact that there is chaos in the market surely lets you know that you made mistakes here,” said one user. “How do you manage not to take any responsibility? »
The usual laboratories did not immediately respond to DL News“Requests for comments.
Many DeFi applications treated USD0 and its staked version as equal value. They were designed to allow the two assets to be exchanged one by one.
This is no longer the case. Now, those managing DeFi integrations are struggling to adapt.
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Users of Pendle, another protocol that allows users to split assets into tokens representing their principal and yield-producing portions, could face losses after the value of core USD0++ tokens declined following the change.
Many investors had bet on the USD0++ type bond, with the understanding that it could be redeemed at a one-to-one ratio for USD 0, which is pegged to the dollar.
However, with the new change, USD0++ can only be redeemed for $0.87 unless holders wait until 2028 when the bond token matures.
How does USD0 work?
USD0 is a dollar-pegged token backed by real-world assets, such as short-term US Treasuries.
Holders can stake 0 USD, convert it to USD0++, which is locked for four years and receives a yield paid into the protocol’s native token, USUAL.
Before Thursday’s changes, documentation on the Usual site indicated that USD0++ holders would be able to exchange their tokens for USD0 at a ratio of less than one to one.
After the changes, Usual updated its documentation to include the $0.87 floor on these redemptions.
A previous version of Usual’s documentation from before the change did not indicate that the floor for USD0++ would be hardcoded at $0.87 in the future.
Conditional exit
There may be hope for USD0++ holders who were unaware of the change.
On Usual Discord, community manager Noé Giglio confirmed to investors that a conditional exit from USD0++ to USD0, pegged to the dollar, in a one-to-one ratio, would be implemented early next week.
Redemptions, however, require users to give up a portion of the returns accrued on their USD0++ holdings.
It is unclear whether those who choose to hold their USD0++ bond tokens will ever make a profit, even when they mature.
“This is a very tricky situation, because if USD0++ was traded as a zero-coupon bond, that means the position will be underwater – essentially bad debt in disguise – forever,” Stani Kulechov, founder of Principal DeFi Aave lending protocol. , said on Telegram.
“Even after four years of maturity, borrowers may already be experiencing such high borrowing costs that they abandon their positions as unprofitable and never repay,” he said.
Tim Craig is DL News’ DeFi correspondent based in Edinburgh. Contact us with advice at tim@dlnews.com.
