Recently, the depegging of USD0++ issued by Usual has become a hot topic in the market, causing panic among many users. After being listed on top-tier centralized exchanges (CEX) in November last year, the project saw a more than 10-fold increase. Its RWA-backed stablecoin issuance mechanism and token model bear striking similarities to those of Luna and OlympusDAO from the previous cycle. Additionally, with backing from French Member of Parliament Pierre Person, Usual gained widespread attention and discussion in the market.

While the public initially had high hopes for Usual, recent events have brought it down from its pedestal. On January 10, Usual announced changes to the early redemption rules for USD0++, causing the stablecoin to briefly depeg to nearly $0.9. As of the evening of January 15, 2025, when this article was published, USD0++ was still hovering around the $0.9 mark.

(The Depegging of USD0++)

The controversy surrounding Usual has reached a boiling point, and dissatisfaction in the market has completely exploded, causing a huge uproar. While the overall product logic of Usual is not overly complex, it involves many concepts and intricate details, with multiple types of tokens in one project. Many people may not have a systematic understanding of the causes and effects.

This article aims to systematically outline Usual’s product logic, economic model, and the causal relationship behind the depegging of USD0++, in order to help others deepen their understanding and thoughts. Here, we will first present a seemingly “conspiracy theory”-like viewpoint:

In a recent announcement, Usual set the unconditional floor price for USD0++ to USD0 at 0.87, with the goal of triggering a liquidation of the USD0++/USDC circular lending positions on the Morpha lending platform, thereby resolving the main users involved in mining, withdrawing, and selling, while avoiding a systemic bad debt in the USDC++/USDC treasury (the liquidation LTV is 0.86).

Next, we will elaborate on the relationships between USD0, USD0++, Usual, and its governance token, in order to help clarify the underlying complexities of Usual.

Understanding Usual’s Products Through Its Tokens

The Usual product system primarily includes four tokens: the stablecoin USD0, the bond token USD0++, the project token USUAL, and the governance token USUALx. However, since the latter is not crucial, the product logic of Usual will mainly focus on the first three tokens, divided into three layers.

Layer 1: Stablecoin USD0

USD0 is a fully-collateralized stablecoin backed by RWA (Real-World Asset) collateral, meaning that each USD0 token is supported by an equivalent value of RWA assets. However, most of the USD0 tokens are minted using USYC, while some USD0 tokens use M as collateral. (Both USYC and M are RWA assets backed by U.S. short-term government bonds.)

It can be verified that the collateral for USD0 on-chain is stored at the address 0xdd82875f0840AAD58a455A70B88eEd9F59ceC7c7, which holds a significant amount of USYC assets.

Why does the treasury that stores the underlying RWA assets contain large amounts of USD0? This is because when users burn USD0 to redeem RWA tokens, a portion of the transaction fee is deducted, and this fee is stored in the treasury in the form of USD0.

The minting contract address for USD0 is 0xde6e1F680C4816446C8D515989E2358636A38b04. This address allows users to mint USD0 through two methods:

1. Directly mint USD0 using RWA assets: Users can inject tokens like USYC, which are supported by Usual, into the contract to mint USD0 stablecoins.
2. Transfer USDC to an RWA provider and mint USD0.

The first option is simpler. Users input a certain amount of RWA tokens, and the USUAL contract calculates the equivalent dollar value of these RWA tokens, then issues the corresponding USD0 stablecoins to the user. When users redeem, the contract returns RWA tokens of equivalent value, based on the amount of USD0 burned and the current price of RWA tokens. During this process, the USUAL protocol deducts a transaction fee.

It’s important to note that most RWA tokens are automatically compounded, either through new token issuance or value appreciation. RWA token issuers typically hold large amounts of interest-bearing assets off-chain, such as U.S. government bonds, and return the interest to RWA token holders.

The second option for minting USD0 is more interesting, as it allows users to mint USD0 directly using USDC. However, this step requires participation from an RWA provider or intermediary. In simple terms, users place an order through the Swapper Engine contract, specifying the amount of USDC they wish to contribute and sending it to the Swapper Engine contract. When the order is matched, the user will automatically receive USD0. For example, in Alice’s case, the process she experiences would be as follows:

In the actual process, an RWA provider or intermediary is involved. As shown in the diagram below, Alice’s request to exchange USDC for USD0++ is responded to by the RWA provider, Robert, who directly mints USD0 using RWA assets. Robert then transfers the USD0 to Alice via the Swapper Engine contract and takes the USDC Alice used to place the order.

In the diagram, Robert is the RWA provider/intermediary. It’s clear that this model is essentially similar to gas fee reimbursement—when you need to perform an operation using a token you don’t possess, you use another token to find someone else to trigger the operation for you. The intermediary then finds a way to transfer the “result” of the operation back to you, while collecting a fee in the process.

The diagram below illustrates the series of transfer actions triggered during the process where the RWA provider accepts the user’s USDC assets and mints USD0 tokens for the user:

Second Layer: Enhanced Treasury Bond USD0++

In the previous section, we mentioned that when users mint USD0 assets, they need to stake RWA assets. However, the interest generated from the automatically accruing interest on RWA assets is not directly distributed to those minting USD0. So where does this interest ultimately go? The answer is that it flows to the Usual DAO organization, which then redistributes the interest from the underlying RWA assets.

USD0++ holders can then share in the interest profits. If you stake USD0 to mint USD0++ and become a USD0++ holder, you can receive the interest from the underlying RWA assets. However, note that only the portion of USD0 that was minted into USD0++ will be entitled to the interest from the corresponding underlying RWA assets.

For example, if there is $1 million in underlying RWA assets used to mint USD0, and $1 million worth of USD0 is minted, with $100,000 of USD0 then minted into USD0++, the USD0++ holders will only receive interest from the $100,000 worth of RWA assets, while the remaining $900,000 in RWA assets will generate interest for Usual.

Additionally, USD0++ holders can receive additional incentives in the form of USUAL tokens. USUAL tokens are minted and distributed daily through a specific algorithm, with 45% of the newly minted tokens going to USD0++ holders. In summary, the returns for USD0++ holders consist of two parts:

1. The yield from the underlying RWA assets corresponding to USD0++.
2. The yield from the daily distribution of newly minted USUAL tokens.

The diagram above shows the sources of yield for USD0++. Holders can choose to claim their daily yield in USUAL tokens or receive it in USD0 tokens every 6 months.

With this mechanism in place, the staking APY for USD0++ typically stays above 50%, and even after recent issues, it remains at around 24%. However, as mentioned earlier, a significant portion of the returns for USD0++ holders is distributed in USUAL tokens, which fluctuate with the price of Usual, leading to substantial uncertainty. Given the recent turbulence surrounding Usual, the sustainability of this yield is highly questionable.

According to Usual’s design, USD0 can be staked 1:1 to mint USD0++, with a default lockup period of 4 years. Therefore, USD0++ is similar to a tokenized 4-year floating-rate bond. When users hold USD0++, they can receive interest in USUAL tokens. If users wish to redeem USD0 before the 4-year lockup, they can exit through secondary markets like Curve by exchanging USD0++ for USD0 in the trading pair.

Apart from Curve, another option is using protocols like Morpho, where users can stake USD0++ as collateral to borrow USDC or other assets. At this point, users need to pay interest. The diagram below shows the borrowing pool on Morpho where USD0++ is used as collateral to borrow USDC, with the current annualized interest rate at 19.6%.

Of course, in addition to the indirect exit paths mentioned above, USD0++ also has a direct exit mechanism, which is one of the key factors leading to the USD0++ de-pegging. We will discuss this in more detail later.

Third Layer: Project Token USUAL and USUALx

Users can obtain USUAL by staking USD0++ or purchasing it directly from the secondary market. USUAL can also be staked to mint the governance token USUALx 1:1. Whenever USUAL is minted, holders of USUALx can receive 10% of the minting, and after the Revenue Switch is activated, they can also share in most of the interest yield from the underlying RWA assets. USUALx also has an exit mechanism to convert it back into USUAL, though it requires paying a fee upon exit.

Thus, the entire product logic of Usual, consisting of three layers, is illustrated in the diagram below:

In summary, the RWA assets underlying USD0 earn interest, with a portion of the yield distributed to USD0++ holders. Enabled by USUAL tokens, the APY for USD0++ holders is further boosted, which can encourage users to mint more USD0 and convert it into USD0++ to receive a positive feedback loop. As for the distribution of USUALx yields, it incentivizes USUAL holders to lock up their tokens.

De-pegging Event: The “Conspiracy” Behind Modifying Redemption Rules — A Tale of Loop Loans and Morpho Liquidation Line

(Usual Official Announcement)

Previously, Usual’s redemption mechanism allowed users to redeem USD0++ for USD0 at a 1:1 ratio, ensuring a guaranteed exit. For stablecoin holders, the over 50% APY was highly attractive, with the guaranteed redemption offering a clear and secure exit strategy. Coupled with backing from the French government, Usual managed to attract many large investors. However, on January 10, an official announcement revised the redemption rules, offering users two options for redemption:

1. Conditional Redemption: The redemption ratio remains 1:1, but a significant portion of the yield paid in USUAL tokens must be sacrificed. This yield is split as follows: 1/3 for USUAL holders, 1/3 for USUALx holders, and 1/3 is burned.
2. Unconditional Redemption: No yield is deducted, but the redemption ratio is reduced to a minimum of 87%. The official announcement stated that this ratio may increase back to 100% over time.

Of course, users can also choose not to redeem and instead lock up USD0++ for 4 years, though this option carries considerable uncertainty and opportunity cost.

Now, the crucial question is: why did Usual introduce such seemingly unreasonable terms?

As mentioned earlier, USD0++ is essentially a tokenized 4-year floating-rate bond, and an immediate exit would mean forcing Usual to redeem the bonds early. The USUAL protocol considers that by minting USD0++, users have committed to locking USD0 for four years, and exiting early constitutes a breach of contract, with a penalty.

According to the USD0++ whitepaper, if a user initially deposited $1 worth of USD0, when they wish to exit early, they would need to make up for the future interest income of that $1. The final redemption would be: $1 — future interest income. As a result, the forced redemption price of USD0++ would be lower than $1.

The following diagram provides the method of calculating the floor price of USD0++ from the USUAL official documentation (which, at first glance, seems somewhat predatory):

Usual’s announcement will take effect on February 1, but many users started fleeing immediately, causing a chain reaction. It is widely believed that, based on the redemption mechanisms in the announcement, USD0++ could no longer maintain a rigid peg with USD0, prompting USD0++ holders to exit early.

This panic naturally spread to the secondary market, leading to a massive sell-off of USD0++, causing the USD0/USD0++ trading pair on Curve to become severely imbalanced, with the ratio reaching an extreme of 9:91. Additionally, the price of USUAL plummeted. Faced with market pressure, Usual decided to move up the implementation of the announcement to next week, hoping to raise the cost for users to redeem USD0++ for USD0, thus protecting the price of USD0++.

(Source: Curve)

Of course, some argue that USD0++ was never meant to be a stablecoin but a bond, so the concept of de-pegging doesn’t apply. While this view is theoretically correct, we respectfully disagree for the following reasons:

1. First, the unwritten rule in the crypto market is that only stablecoins with “USD” in their name are recognized as stablecoins.
2. Second, USD0++ was originally exchanged 1:1 with a stablecoin, and people assumed its value would be equivalent to that of a stablecoin.
3. Third, the USD0++ token appears in Curve’s stablecoin pool. If USD0++ were not intended to be seen as a stablecoin, it could have been rebranded, and Curve could have delisted USD0++ or moved it to a non-stablecoin pool.

So, what could be the motivation behind the project’s decision to blur the lines between USD0++ as a bond and a stablecoin? There may be two points worth considering. (Note: The following views are speculative and based on some clues, so please take them with caution.)

1. Precise Blow to Loop Loans: Why was the redemption floor ratio set at 0.87, which is just slightly above the liquidation line of 0.86 on Morpho?

This involves another decentralized lending protocol: Morpho. Known for its minimalist code (only 650 lines), Morpho offers an elegant DeFi solution. Many users, after minting USD0++, deposit it into Morpho to borrow USDC, which is then used to mint more USD0 and USD0++, thus creating a loop loan.

Loop loans can significantly increase a user’s position in the lending protocol, and more importantly, the USUAL protocol incentivizes these positions with USUAL tokens:

Loop loans provided Usual with a higher TVL, but over time, they posed an increasing risk of a leveraged collapse. These loop loan users, who repeatedly minted USD0++ and earned a lot of USUAL tokens, became the primary sellers in the market. If Usual wanted to develop in the long run, it had to address this issue.

(Schematic diagram of Loop loan)

Let’s briefly discuss the leverage in circular lending. Suppose you follow the process shown in the diagram: borrowing USDC, minting USD0++, depositing USD0++, and borrowing USDC again, while maintaining a constant Loan-to-Value (LTV) ratio on Morpha.

Assume LTV = 50%, and your initial funds are 100 USD0++ (equivalent to 100 USD). Every time you borrow USDC, the amount is half of the USD0++ you deposited. Using the sum formula for a geometric series, when the total amount of USDC you can borrow approaches infinity, the total USDC borrowed through circular lending will approach 200 USD. It’s easy to see that the leverage ratio is nearly 200%. The circular lending leverage ratio under different LTVs follows the simple formula shown below:

For those who previously engaged in the Morpha-to-Usual circular lending, the LTV might have been higher than 50%, resulting in even greater leverage. As you can imagine, the systemic risk behind this is enormous. If this continues for a long time, it will eventually lead to a time bomb.

Now, let’s talk about the liquidation line value. In the past, the Morpha protocol’s USD0++/USDC liquidation line LTV was set at 0.86. This means that if the ratio of the USDC you borrowed to the USD0++ you deposited exceeds 0.86, liquidation will be triggered. For example, if you borrowed 86 USDC and deposited 100 USD0++, your position would be liquidated as soon as USD0++ drops below 1 USD.

(Source: Morpha)

In fact, the liquidation line at 0.86 on Morpha is quite subtle, because Usual has set the USD0++/USD0 redemption ratio at 0.87:1, which directly correlates to this value.

Let’s assume many users, believing in the stability of USD0++, opted for a very high LTV, close to the liquidation line of 86%, to engage in the circular lending process. With such high leverage, they maintained a large position and earned substantial interest. However, using an LTV close to 86% means that if USD0++ depegs, liquidation will occur. This is the primary reason for the large liquidations of USD0++ on Morpha after it depegged.

But here’s the important point: even if a circular lending user’s position is liquidated, Morpha does not incur any loss. This is because when the LTV is between 86% and 100%, the value of the USDC borrowed is still lower than the value of the collateral (USD0++), meaning no systemic bad debts occur on the platform. (This is key.)

Understanding this, we can now grasp why Morpha’s USD0++/USDC liquidation line was deliberately set at 0.86, just slightly below the redemption price of 0.87 set by Usual.

From the two versions of conspiracy theories, the first version is: Morpha is the consequence, Usual is the cause. The entity that set up the USD0++/USDC vault on the Morpha lending platform is MEV Capital, the same entity managing Usual. They knew that they would eventually set the redemption floor at 0.87, so they intentionally set the liquidation line a little lower than 0.87.

After Usual announced the update and set the USD0++ redemption floor at 0.87, and clarified this in the USD0++ whitepaper with discount formulas and charts, USD0++ began to depeg and briefly approached 0.9 USD, but always stayed above the 0.87 floor. It seems the 0.87:1 redemption ratio was not set randomly, but was carefully calculated, influenced by financial market interest rates.

The coincidence here is that Morpha’s liquidation line is at 0.86, which is slightly below the 0.87 redemption floor. This means that the USD0++/USDC vault on Morpha won’t have systemic bad debts and allows the liquidation of circular lending positions, achieving deleveraging.

The second version of the conspiracy theory is: Morpha is the cause, Usual’s subsequent announcement is the result. The 0.86 liquidation line on Morpha was set before the 0.87 redemption price. Later, Usual, considering the situation on Morpha, intentionally set the redemption price just above 0.86. In any case, there is a strong correlation between the two.

1. Another Motive of the Usual Team: Saving the Token Price at Minimum Cost

The USUAL-USUALx economic model is a typical positive feedback loop, and its staking mechanism causes the token to rise rapidly during bullish periods. However, once a downward trend sets in, it falls even faster, leading into a death spiral. When the price of USUAL drops, staking yields also significantly decrease due to the combined effects of price and inflation, triggering panic selling and accelerating the downward spiral.

Since reaching a peak of 1.6, USUAL has been in decline, and the project team likely realized the danger of entering a death spiral. Once the downward phase begins, the only option is to try to push the price back up. The most famous example of such projects is OlympusDAO, which experienced a “double peak” pattern due to large external liquidity injections.

(Source: CoinMarketCap)

However, as we can see from the OHM chart, such projects often cannot escape the fate of their token prices crashing to zero, and the project team is well aware of this. Time, however, is money. Some estimates show that Usual’s monthly income is around $5 million, so the team needs to weigh the pros and cons and decide whether they can extend the life of the project as long as possible.

But currently, it seems that they are trying to avoid spending real capital and are instead attempting to reverse the downward trend through adjustments in mechanics and gameplay. In the conditional redemption model, part of the yield from USD0++ stakers is distributed to USUAL and USUALx holders, with 1/3 burned. Since USUALx is obtained by staking USUAL, this effectively reduces the circulating supply of USUAL, offering a form of stabilization.

However, the project team’s intent faces a contradiction. To incentivize users to stake and attract them with rewards, they need to keep a large portion of tokens locked, which means the tokens must be low-circulating. USUAL’s circulating supply is 518 million, with a total of 4 billion tokens, and its staking incentive model needs to rely on continuous unlocking. In other words, USUAL’s inflation is severe, and to curb inflation with the 1/3 burn, the USUAL proportion of redemption must be sufficiently high.

This proportion is set by the project team. In the conditional redemption model, the formula for the amount of USUAL that a redeemer must pay from the interest to Usual is as follows:

Where Ut is the amount of USUAL that can be “accumulated” per USD0++, T is the time factor (default 180 days, set by the DAO), and A is the adjustment factor. If the weekly redemption amount exceeds X, A = 1; if it is less than X, A = redemption amount/X. Obviously, if too many people redeem, they will have to pay more in USUAL rewards.

The issue is, if the conditional redemption channel forces users to pay a too high proportion of USUAL rewards, users will simply choose unconditional redemption, which could push the price of USD0++ down again until it hits the floor price of 0.87. Coupled with panic selling, unstaking, and reduced credibility, it’s hard to say if this is a successful strategy.

However, there is an interesting theory in the market: Usual has managed to solve the “mining, withdrawing, and selling” dilemma in DeFi in its own unique way. Overall, Usual’s project team designed the 0.87 USD unconditional redemption floor price and conditional redemption mechanism, which leads us to suspect that Usual intentionally manipulated the system to force circular lending whales to exit with profits.

What the Future Holds and the Issues Exposed

Before the USUAL conditional redemption payment ratio is revealed, it is difficult to predict which option most users will choose and whether USD0++ will be able to regain its peg. As for the price of USUAL, the same paradox remains: the project team hopes to reverse the death spiral purely through gameplay mechanisms instead of using real money. However, the unconditional floor price of 0.87 is not low enough. In the end, many users will likely opt for unconditional redemption rather than conditional redemption, meaning that not enough USUAL will be burned to reduce circulating supply.

Beyond Usual itself, this event exposes three more direct issues.

First, in the Usual official documentation, it clearly states that USD0 staking has a 4-year lock-up period, but it did not previously specify the exact rules for early redemption. Therefore, this Usual announcement is not a sudden introduction of a previously undisclosed rule, but the market reaction has been one of shock and even panic. This indicates that many participants in DeFi protocols don’t pay close attention to project documentation.

As DeFi protocols become increasingly complex, with simpler projects like Uniswap and Compound becoming rarer, this is not necessarily a positive development. Users often invest significant amounts in DeFi, and they should at least read and understand the official documentation of the protocols they engage with.

(Source: Usual Docs)

Second, although the official documentation was already clear, it is undeniable that Usual can change rules on a whim. Parameters like T and A are fully controlled by the project team. In this process, there was neither a strict DAO proposal resolution nor a community consultation. Ironically, the official documentation continuously emphasizes the governance attributes of the USUALx token, yet in the actual decision-making process, there is no governance mechanism. Most Web3 projects are still in a highly centralized stage, and despite emphasizing technologies like TEE and ZK to ensure asset security, both the project team’s and users’ awareness of decentralization and asset security should be equally prioritized.

Third, the industry is indeed evolving. Learning from the mistakes of projects like OlympusDAO, which had a similar economic model, Usual began trying to reverse the downward trend as soon as the price started to fall. “The lessons of the past are the teachers of the future.” We often say that very few Web3 projects are truly operational, but the ecosystem is rapidly developing as a whole. The earlier projects are not entirely meaningless; their successes and failures are being observed by later projects and may reappear in those that are genuinely impactful. Given the current market and ecosystem conditions, we should not lose faith in the entire industry.

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