Usual Protocol, a rapidly rising entity in the DeFi sector, has encountered significant community backlash following a recent token restructuring. This adjustment to the yield-generating token has triggered intense selling pressure in secondary markets. The USD0++ token briefly plummeted from its $1 value to under 90 cents on the decentralized market called Curve.
Reasons Behind the Token Change
The protocol’s governance token, USUAL, also experienced declines of up to 17% during the day but later showed some recovery. This selling pressure stemmed from an unexpected change in the repayment mechanism of the USD0++ token, which was executed without prior notice to investors and liquidity providers.
The USD0 token is supported by short-term government bonds to maintain its price at the $1 level. Users staking on Usual receive USD0++ tokens with a four-year locking period. A new feature called “dual-path exit” allows investors to withdraw locked tokens early at a price floor of 0.87 USD0 or to forego rewards for a balance withdrawal.
The abrupt implementation sparked criticism among DeFi users, as the design was altered without prior notification. Some liquidity pools had fixed the token’s price at $1, leading to confusion among borrowers and liquidity providers.
“It stems from a misunderstanding of the protocol’s mechanisms and the need for better communication,” said the Usual team.
Recently, the USD0++ token was trading at 0.91 USD0 in the Curve pool, while the protocol’s total value locked (TVL) dropped below 1.6 billion dollars.
DeFi experts highlighted the potential risks associated with products offering high yields. Rob Hadick noted that users taking risks must fully understand the rules and trust they won’t change.
The protocol team stated that the change in the early unstaking mechanism was communicated in October and emphasized their efforts to provide more transparent information. They also announced plans to initiate a revenue-sharing mechanism to distribute gains to long-term governance token holders.
The Usual Protocol incident serves as a reminder to DeFi participants of the potential dangers associated with high-yielding products. Investors should closely examine protocol mechanisms to prevent market panic in response to changes.
Disclaimer: The information contained in this article does not constitute investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should conduct their own research.
