The world of decentralized finance was rocked this week as the Usual Money protocol suddenly changed the redemption terms for its popular USD0++ token, leaving investors feeling blindsided and sparking intense debate over the risks lurking in complex yield-generating stablecoin models.
Usual Money’s Controversial Move
At the heart of the controversy was Usual Money’s abrupt decision to alter the redemption ratio for USD0++, which had been widely perceived as a stablecoin pegged 1:1 to the protocol’s base USD0 token. On January 9th, without prior warning, Usual replaced the fixed rate with a floating floor price of $0.87 – effectively revealing USD0++’s true nature as a zero-coupon bond set to mature in 4 years.
The situation with USD0++ stems from a misunderstanding of protocol mechanics and communication that should have been better articulated. We apologize and will continue doing our best to convey transparent information to users.
– Usual Money official statement
The Allure and Illusion of USD0++
For months, USD0++ had been touted as an enhanced version of USD0, promising attractive yields through a combination of Treasury bond interest and USUAL token rewards. The fixed 1:1 redemption rate hard-coded into the protocol’s interface created the illusion of a safe, stable investment – an illusion shattered by Usual’s unilateral decision.
- Zero-coupon bonds do not pay regular interest but are sold at a discount and mature to full value
- USD0++ functioned this way, but the nuances were obscured by the protocol’s design
Liquidity Providers Left in the Lurch
The fallout was swift and severe. Panicked investors rushed to offload their USD0++, causing the token’s price to plummet to $0.915 and draining liquidity pools on major DEXes. Many found themselves trapped, forced to either accept steep losses or hold the devalued asset for the full 4-year term – all while still being charged performance fees on their now-inaccessible funds.
Over $1 billion worth of crypto assets were effectively locked up by Usual Money’s policy change, with the protocol continuing to collect revenues on the trapped funds.
Anatomy of a DeFi Disaster
As the dust settled, the crypto community began to untangle the complex web of factors that led to the Usual Money meltdown. While some cried foul, accusing the protocol of executing a calculated “rug pull” to shore up its own finances, others pointed to a perfect storm of misaligned incentives, inadequate communication, and user naivete.
Misrepresentation and Misunderstanding
Though Usual Money claimed it never explicitly called USD0++ a stablecoin, the protocol’s design choices – from the fixed redemption rate to the “+++” branding – undeniably contributed to widespread misconceptions about the token’s fundamental nature and risks.
The issue was changing the price overnight and trapping people without warning. Everyone thought they’d announce it well in advance so users and partners could prepare.
– Twitter user Pascal0x
Conflicts of Interest
Suspicions swirled around Usual Money founder Adli.eth’s stake in MEV Capital, which had launched a USD0++ vault on the Morpho protocol mere days before the redemption change. Some accused MEV of knowingly setting a trap, siphoning performance fees from users whose collateral was devalued and locked up by Usual’s actions.
Miner Extractable Value (MEV)
MEV refers to profits that can be extracted by manipulating transaction ordering, often favoring the interests of validators and sophisticated traders over ordinary users.
Lessons and Reflections
The Usual Money fiasco serves as a stark reminder of the high risks and complexities inherent to DeFi yield farming. It underscores the critical importance of transparency, clear communication, and user education in an ecosystem where the line between innovation and recklessness often blurs.
- DeFi protocols must prioritize user understanding over clever token mechanics
- Clear, timely communication is essential when implementing major economic changes
- Investors need to look beyond enticing yields and thoroughly examine protocol fundamentals
As the DeFi space matures, it is crucial that projects strive for greater transparency and accountability, lest they risk eroding the trust and accessibility that are core to the decentralized finance ethos. The hard lessons of Usual Money should serve as a wake-up call for an industry still grappling with the challenges of its own rapid growth and evolution.
Key Takeaways
- Usual Money abruptly changed USD0++ redemption terms, revealing the token as a zero-coupon bond rather than a true stablecoin
- The move triggered a liquidity crisis, trapping user funds and damaging trust in the protocol
- The incident highlights the risks of complex yield-bearing tokens and the need for greater DeFi transparency and user education
