The shiny new stablecoin, Usual Protocol, will see its USD0++ “stablecoin” A popular misunderstanding has lost parity to USD0 since 17 hours. The price is now around $0.92.
It’s clear that USD0++ does not qualify as a stablecoin. This is a derivative that allows for liquid stakes of USD0, similar to Lido’s stETH compared with ETH. The USD peg for USD0 works fine and there is no issue with the T-bills backing it.
Usual’s model of business is built on the concept of an “onchain Tether” Users are rewarded. The protocol’s native USUAL token is the reward for staking USD0 against USD0++.
Stakers who decide to change their minds about USD0++ before maturity can opt out by eschewing rewards, and they will be able to unstake USD0 back at the 1:1 exchange rate. The first option to exit will become available next week.
The reason why you should be using the “depeg” It’s not a fault that there is a difference between USD0 and US0++. Imagine USD0++ is a bond that matures in four years. This bond would technically trade at a discount to reflect the risk premium of holding it for 4 years. This is what economists refer to as the “time value of money.”
Remember that Lido’s stETH also depegged in June 2022 from ETH due to financial problems surrounding the now-defunct Celsius.
Due to a market panic, LPs pulled stETH liquid from Curve pools. This caused massive liquidity imbalances resulting in stETH:ETH being depegged. The USD0++ doesn’t have to be traded at the same price as USD0, just like stETH is not required to have a parity rate with ETH.
The USD0++ haircut is due to Usual’s recent announcement that they have an alternate USD0++ to USD0 exit. A blog published yesterday noted the feature.
According to updated documents, the new option allows users to convert USD0++ into USD0 by manually setting a floor price of 0.87USD0 per USD0++ while still retaining the rewards as USUAL emission (unlike with the 1:1 original exit option).
Why is it $0.87? Why $0.87? Treehouse Finance @mytwogweis explained:
USD0++ is worth around $0.855 today if you are expecting 4% per year over the next four years. You would buy the USD0++ at $0.855, keep it for 4 years and then redeem it at 1 for a 4% risk-free return.
The new USD0++ exit option is more accurate in reflecting what it truly represents: long-term bonds.
Usual’s original go-to market strategy was built upon different premises.
Pendle PT – USD0++ Farmers who have entered fixed yield trading are finding that they now find themselves in a situation where their trades suddenly become unprofitable. “overpaid” A bond’s face value (1 PT USD0++ equals 1 USD0 ++).
USD0++ pendle pools (with maturity dates of Jan. 30 2025) are seeing an increase in demand.
The situation is made worse by vault curators who, on the Morpho lending market, have fixed prices at USD0++ to USDC parity of 1:1, instead of allowing assets to be based on free-floating markets.
In response, risk curator Gauntlet from Morpho and the other LPs reallocated the vault supply liquid in USD0++ above the market price of $0.91 before the announcement. This sparked public rumors about insider trading.
Tarun Chhitra, CEO and founder of Gauntlet in an email to Blockworks said the following about their activity: “We were not privy to any advance notice, however, as the timestamp of these transactions show (the Usual team updated their docs on redemption before this). We were focused on making sure our users weren’t exposed, and we automatically rebalance out of markets when either risk or concentration limits are breached.”
MEV Capital issued a public announcement denying receiving any insider info from Usual. The firm did not mention who it got the information from.
USUAL has devalued by -18.7% during the last 24 hour period, at 11:45 am Eastern Time.
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