Usual Protocol threatened by USD0 loss of stability

Usual Protocol, a decentralized stablecoin issuer, has warned about instability in its USD0 asset-backed stablecoin. The protocol itself remains safe, though the stablecoin briefly slid to $0.99 due to secondary market activity. 

Usual Protocol warned that the de-peg of its stablecoin, Usual USD (USD0), is due to the actions of a single whale trader. The protocol itself works as intended and has not experienced another form of stress or de-leveraging. 

‘Overall, this was our first major stress test of the USD0 peg, with more redemptions than the entire TVL of GHO in a few hours—yet it was business as Usual. We will continue refining our processes to be even more efficient, and we have many exciting updates on the way,’ explained Usual Protocol in a recent X post.

The deviation of stablecoins from their $1 level recalls the remaining fears of the 2022 bear market when Terra’s UST crashed because it was backed by LUNA tokens. USD0 is different due to its more diversified collateral structure, supported by cash-like assets.

USD0 only dipped to $0.99 for seconds before recovering its $1 stability level. Until this event, the token has remained closer to $1, even surpassing larger, more widely used stablecoins. To avoid instability, USD0 offers redemptions only to a selected few projects. The redemptions are available via a smart contract for all pre-listed partners. 

USD0 is one of the more widely diversified stablecoins, relying on a mix of tokenized assets, or RWA. The stability of USD0 is ensured by a collateral of USYC, M by M^0, USDTB by Ethena, as well as the BUIDL token issued by BlackRock. The collateral also includes OUSG by Ondo, and more. The end goal is to offer multiple liquid exit routes for ecosystem participants without breaking the token’s peg. 

USUAL token slides lower after market turbulence

Usual Protocol only launched its native USUAL token on December 20. The token peaked above $1.57 soon after the initial launch of trading. 

A few days after the launch, USUAL slid to $0.94, though without major crashes. The token retained its range, as de-pegs are not unusual on decentralized markets and are not always seen as catastrophic events. 

The current episode for USD0 occurs at a time when Usual Protocol has accrued near-record value locked. The protocol already carries $1.62B in assets and aims to become one of the DeFi hubs for redistributing value.

USUAL tokens are held in 14,492 wallets, and holders are entitled to a share of the protocol’s revenues. Stablecoin issuers usually retain their revenues, but USUAL is one of the DeFi hubs aiming to redistribute earnings. The protocol reports $270.15M in revenues for the past four years. USUAL works on a smaller scale, with just 1.67B USD0 supply, though the protocol expanded in the last few weeks. 

The expansion of the stablecoin means more users will hold asset-backed tokens, which offer the best safety profile. USD0 tokens are compatible with other DeFi protocols. The asset has already spread to Curve, Balancer, and Morpho.

USUAL lines up among growing stablecoin issuers

Based on Token Terminal data, just at the end of 2024, the USUAL token had peak activity and generated the highest fees. The USD0 supply expanded by 5.4% in the last week, the second-largest expansion among niche stablecoin protocols.

USUAL also expands its native token staking to provide additional rewards to the community. Compared to other DeFi startups, the protocol has undergone conservative expansion. 

Usual Protocol is one of the projects with early backing from top crypto funds. The project has raised a total of $18.5M. The latest fundraising was a Series A round for $10M, backed by Binance Labs, Kraken Ventures, and Coinbase Ventures. Usual has previously worked with more limited funding while attempting to grow its user base. 

The recent stress test coincides with the project’s next stage as a high-profile issuer backed by some of the largest crypto funds. Around 7.5% of the USUAL token supply was distributed through Binance Launchpool. Later, the protocol was listed with a rather unusual pairing on Binance, with a market against the Turkish lira.

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