Usual Stablecoin Controversy Deepens Over Changes to Redeem Function

Usual Labs, the developer behind USD0 and its staked counterpart USD0++, announced sweeping changes to its redemption mechanism. The move has caused market disruption and triggered a broader discussion on trust and transparency in stablecoin protocols.

USD0++—a staked version of USD0 tied to the US dollar—was once redeemable at a 1:1 ratio. However, recent modifications have introduced two exit options that fundamentally alter the token’s value proposition.

This shift has amplified concerns, with many pointing to the ongoing Usual Stablecoin controversy as a cautionary tale for decentralized finance (DeFi) protocols.

What Sparked the Usual Stablecoin Controversy?

USD0++’s value dropped to $0.92—an 8% decline from its previous redemption value—following Usual Labs’ decision to revise its mechanics. Previously, USD0++ could be redeemed 1:1 with USD0, maintaining parity and user confidence. Now, holders face two options for exit:

Conditional Exit: Redeem at 1:1 but forfeit a portion of accrued rewards.

Unconditional Exit: Sell USD0++ at a floor price starting at $0.87, gradually increasing to $1 over four years.

Critics argue that this restructuring undermines trust. Renowned crypto analyst Alex Krüger remarked, “The new redemption rules make USD0++ feel more like a financial experiment than a stablecoin asset. This could have been handled more transparently.”

The Usual Stablecoin controversy has significantly impacted liquidity pools. The largest Curve pool holding USD0++ experienced an unbalanced state, with large-scale sell-offs causing the token to drop below the $1 peg. Yield farmers and traders seeking immediate liquidity exited en masse, exacerbating the issue.

DeFi researcher Scott Lewis noted, “This imbalance on Curve underscores how fragile staked derivatives can become when redemption terms are abruptly changed.”

Meanwhile, USD0++’s new design has effectively turned it into a hybrid between a bond and a yield farming tool. High-risk users now stake USD0 into USD0++ to earn USUAL tokens, betting on potential price appreciation, while more conservative holders can lock funds for a fixed 4% annual yield over four years.

Investor Sentiment Amid the Usual Stablecoin Controversy

The controversy has left both retail and institutional investors questioning Usual Labs’ decision-making. In 2024, Usual Labs secured $7 million in funding from prominent backers like IOSG Ventures, Kraken Ventures, and Starkware, positioning itself as a promising DeFi innovator.

However, the latest developments have cast a shadow over its credibility. In a statement to Crypto Insider, investor Daniel Cheung from GSR commented, “Usual Labs’ ability to respond transparently and swiftly to this controversy will determine whether it retains investor confidence. Stablecoin trust is paramount.”

As of press time, Usual Labs has yet to issue an official response regarding the market turbulence or the declining value of USD0++.

USD0++’s redesigned mechanism introduces new risks that didn’t exist before. The prolonged lock-up periods and shifting redemption rules have made it less appealing compared to more liquid alternatives. Critics argue that the token’s allure as a stable investment has diminished.

Crypto strategist Maya Zehavi noted, “Usual’s gamble on staked mechanics creates a dangerous precedent for other stablecoins. If users lose confidence in redemption guarantees, the broader DeFi ecosystem could suffer.”

The system now forces USD0 holders to choose between stability and yield, while USD0++ holders are exposed to the risk of devaluation unless USUAL token rewards offset potential losses.

Lessons from the Usual Stablecoin Controversy

The Usual Stablecoin controversy is a wake-up call for developers, investors, and the broader crypto community. Key takeaways include:

Transparency is critical: Abrupt changes to core mechanics can erode trust.
Liquidity risks matter: Stablecoin systems must maintain balanced liquidity pools to prevent market disruptions.
Redemption guarantees drive confidence: Without consistent mechanisms, users may seek alternative options.

Despite the current controversy, Usual Labs has an opportunity to rebuild trust. Clear communication and potential adjustments to the redemption structure could stabilize the situation. Analysts speculate that Usual Labs may implement new incentives to regain user confidence.

Industry veteran Michael Novogratz shared on social media, “DeFi protocols must prioritize user trust over short-term gains. Usual Labs’ next move will define its legacy in the stablecoin market.”

The Usual Stablecoin controversy highlights the delicate balance required to maintain user confidence in decentralized finance. Usual Labs faces an uphill battle to restore faith in its protocol and prove that its vision for USD0++ aligns with the principles of transparency and stability that the crypto community values.

Whether through revised mechanics or stronger communication, the path forward must address the concerns of its users and investors. The DeFi world is watching closely. Stay updated with the latest developments in the cryptocurrency industry through The BIT Gazette