In-depth Analysis of Usual: The Tricks Behind USD0++ Depegging and Cycle Loan Get Liquidated

Recently, the USD0++ stablecoin issued by Usual has become a hot topic in the market, triggering panic among users. After being listed on a top exchange in November last year, its price increased by more than 10 times. Its stablecoin issuance mechanism and token model based on RWA are quite similar to those of Luna and OlympusDAO in the last cycle. Additionally, with the backing of French Congressman Pierre Person's government background, Usual gained widespread attention.

Despite the optimistic expectations people once had for Usual, a series of recent events have pulled it down from its pedestal. On January 10th, Usual's official announcement to modify the early redemption rules for USD0++ led to it briefly de-pegging to nearly $0.9, and as of the evening of January 15th, it is still hovering around $0.9.

The controversy surrounding Usual has reached a boiling point, and market dissatisfaction has completely erupted. Although the overall product logic of Usual is not complex, it involves many concepts and intricate details, and a project contains multiple tokens, leading many people to lack a systematic understanding of the cause and effect.

This article aims to systematically sort out the product logic, economic model, and the causal relationship of this USD0++ decoupling from the perspective of DeFi product design, helping readers to deepen their understanding and contemplation. We first throw out a seemingly "conspiracy theory" viewpoint:

Usual's recent announcement sets the unconditional floor price for USD0++ to USD0 at 0.87, aimed at getting liquidated the USD0++/USDC circular loan positions on the Morpha lending platform, addressing the main users of mining arbitrage, while also preventing the USD0++/USDC treasury from experiencing systemic bad debts (the liquidation line LTV is 0.86).

Usual Issued Tokens and Product System

The Usual product system mainly includes four types of tokens: stablecoin USD0, bond token USD0++, project token USUAL, and governance token USUALx. Since USUALx is not very important, the product logic of Usual mainly revolves around the first three types of tokens.

Level 1: Stablecoin USD0

USD0 is a stablecoin that is fully collateralized, using RWA assets as collateral. Currently, most USD0 is minted by USYC, with a portion also using M as collateral. ( USYC and M are both RWA assets backed by US short-term government bonds ).

USD0 can be minted in two ways:

1. Directly mint USD0 with RWA assets. Users inject tokens supported by Usual such as USYC to mint USD0.

2. Transfer USDC to RWA providers and mint USD0. Users place orders through the Swapper Engine contract, declaring the amount of USDC to be paid. After the order is matched, USD0 is automatically obtained.

Second Layer: Enhanced Treasury Bond USD0++

USD0++ holders can earn two parts of income:

1. The underlying RWA asset income corresponding to USD0++
2. Daily distribution of earnings from newly added USUAL tokens

Under this mechanism, the staking APY for USD0++ usually remains above 50%, even after recent issues, it is still at 24%. However, a significant portion of the earnings is distributed in USUAL tokens, which can vary greatly with the fluctuations in the price of Usual.

Layer 3: Project Tokens USUAL and USUALx

Users can obtain USUAL by staking USD0++ or purchasing it from the secondary market. USUAL can be staked 1:1 to mint governance token USUALx. Whenever USUAL is issued, USUALx holders can receive 10% of it.

De-pegging Event: The "Conspiracy Theory" Behind Modifying Redemption Rules

On January 10, Usual announced the modification of the USD0++ redemption rules. Users can choose from the following two methods:

1. Conditional Redemption: The ratio remains 1:1, but a portion of the USUAL earnings must be paid.

2. Unconditional Redemption: No earnings deducted, but the redemption ratio is reduced to a minimum of 87%.

This move triggered a chain reaction:

• USD0++ holders begin to exit early
• Panic selling in the secondary market USD0++
• The USD0/USD0++ trading pair in Curve is out of balance, with a ratio of 9:91.
• USUAL price plummets

In this regard, we propose two hypotheses:

1. Precision Get Liquidated Loop Loan

The unconditional redemption floor ratio is 0.87, which is slightly higher than the Morpha lending platform's USD0++/USDC vault liquidation line of 0.86. This may be aimed at getting liquidated on the circular loan positions while avoiding systemic bad debts.

Many users deposit USD0++ into Morpha to lend USDC, then use USDC to mint USD0 and USD0++, forming a circular loan. This increases Usual's TVL but also brings significant leverage risk. Usual may want to take this opportunity to address this issue.

2. Rescue the coin price at the lowest cost

The economic model of USUAL-USUALx is a typical positive feedback flywheel, which can easily lead to a death spiral. The project team may want to reverse the downward trend through gameplay and mechanism changes, rather than investing real money.

During conditional redemption, part of the earnings of stakers worth USD0++ is shared with USUAL and USUALx holders, with 1/3 being burned. This effectively empowers USUAL, encouraging more people to stake USUAL to obtain USUALx, thereby reducing circulation.

But there is a contradiction: if the conditional redemption requires users to pay a USUAL ratio that is too high, users will choose unconditional redemption, which may instead cause the USD0++ price to drop again to the floor price of 0.87.

Exposed Issues

1. Many users do not read the documentation carefully when participating in DeFi projects.

2. Even if the official documentation has long been stated, Usual's arbitrary modifications of the rules reflect that the project is still highly centralized.

3. The industry is constantly evolving. Usual has learned from the lessons of precedents such as OlympusDAO and is considering countermeasures as soon as there is a downward trend in the coin price. This indicates that the entire industry ecosystem is making continuous progress.