January 10, 2025 | Read Online

We're too early in the bull market for stablecoin shenanigans, but it's happening anyway. Today we break down the last 24 hours of drama surrounding Usual protocol.

Taxonomy of euro stablecoins under MiCA:

Source: JJ Roinevirta

As of December 2024, the euro stablecoin market is evolving, with distinct differences in issuer compliance and decentralization. Circle's EURC dominates the market by capitalization, although Membrane Finance co-founder JJ Roinevirta attributes EURC's growth to Circle's liquidity and regulatory maneuvering rather than true market demand.

He's also critical of Circle's "dynamic rebalancing" model for MiCA compliance.

On the decentralized side, Angle's EURA remains the largest crypto-backed euro stablecoin, offering solid DeFi integrations and liquidity. However, the decentralization landscape is challenged by MiCA's evolving enforcement, as issuers like Angle and others need to adapt or risk exclusion from European markets, Roinevirta wrote. Bank-backed stablecoins like EURI, issued by Banking Circle, offer competitive advantages due to low capital costs, but still face slow adoption. In contrast, SG Forge's EURCV, despite early ambitions, struggles with adoption and usage, making it one to watch for future developments.

— Macauley Peterson (X: @yeluacaM | Farcaster: @Macauley)

Usual protocol sees a depeg

Usual protocol, the shiny new stablecoin on the block, is seeing its USD0++ "stablecoin" (a popular misconception) lose parity with USD0 as of 17 hours ago. It's now trading at about $0.92.

But of course, USD0++ is not a stablecoin. It's a liquid staking derivative of the USD0 stablecoin, somewhat like Lido's stETH compared to ETH. (The USD peg of USD0 is fine, and the underlying T-bills have no backing issue.)

Usual's business model is based on the idea of an "onchain Tether" that rewards users. By staking USD0 for USD0++, you receive the underlying T-bill yields and rewards in the protocol's native token, USUAL.

Should USD0++ stakers change their minds before maturity, they can exit by forgoing rewards and unstake back to USD0 at a 1:1 exchange rate. This first exit option will be available as of next week.

This explains why the "depeg" between USD0 and USD0++ isn't exactly a flaw. Think of USD0++ as a bond with four-year maturity. That bond should technically be trading at a discounted rate to reflect a risk premium for holding it for four years. Economists call that the "time value of money."

Recall that in June 2022, Lido's stETH too, depegged from ETH amid financial troubles around the now-defunct Celsius.

Market panic led to LPs pulling stETH liquidity from Curve pools, causing massive liquidity imbalances and a stETH:ETH depeg. Just like stETH does not necessarily have to trade at parity with ETH, USD0++ does not have to trade at parity with USD0.

What's causing the USD0++ haircut today, however, is Usual's announcement of an alternative USD0++-to-USD0 exit option. The feature was noted in a blog post published yesterday.

Based on updated docs, the new exit option would allow users to redeem USD0++ to USD0 at a manually set floor price of 0.87 USD0 per USD0++, while retaining rewards in USUAL emissions (unlike the original 1:1 exit option).

Why $0.87? Because it's the discounted rate at fair value. As Treehouse Finance's @mytwogweis explains:

If you expect 4% annually over four years, the fair value of USD0++ today should be around $0.855. This means you'd buy it at $0.855, hold it for four years, and redeem it at $1 for a risk-free 4% return.

To put it simply, the new exit option more accurately reflects USD0++ for what it is: a long-term bond.

The problem is that Usual's go-to-market strategy had already been built on different premises.

Pendle PT-USD0++ farmers who entered into fixed yield trades are now suddenly finding they've "overpaid" for a bond at face value (on maturity, 1 PT USD0++ is equal to 1 USD0++).

The USD0++ Pendle pool (with a maturity date of Jan. 30, 2025), for instance, is seeing a dump.

Source: Pendle

To make matters worse, vault curators on Morpho lending markets have hardcoded the prices in USD0++:USDC markets at a 1:1 parity, rather than basing assets on a free floating market rate.

The result: Risk curator Gauntlet and other LPs promptly reallocated vault supply liquidity in USD0++ out of Morpho vaults above the current market rate of $0.91, prompting public rumors of insider trading.

DMH 🦇🔊🌊 @DeFi_Made_Here

Gauntlet withdrew ~$43m from usd0++ markets just before the drama started

gg nerd + RIP bozo + suck on deez immutable nuts + thanks for playing

tw profile: Togbe Togbe @Togbe0x

total free-for-all race to get out of the hardcoded market with curators fighting with users and each other to exit

0xBEeF is Stakehouse
0xd630 is MEV

12:27 PM • Jan 10, 2025

218 Likes 19 Retweets

15 Replies

In an email to Blockworks, Tarun Chitra, founder and CEO of Gauntlet, said of the firm's 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 has released a public statement denying it received any insider information from Usual, although it does not say who the firm received the information from.

USUAL, the protocol's native, has unwound -18.7% over the last 24 hours, as of 11:45 am ET.

— Donovan Choy (X: @donovanchoy | Farcaster: @donovan), Macauley Peterson

ThorChain community votes to resume redemptions

ThorChain's node governance has opted to unpause both loan redemptions and Savers withdrawals. This decision marks a significant moment in ThorChain's decentralized governance, showcasing that the protocol remains responsive to community concerns. Following a period of intense discussion on the group's Discord server, node operators opted to go against the advice of founder JP Thorbjornsen.

Some next steps have been outlined to address ongoing protocol concerns. A new governance thread will evaluate optimal levers for the sunset of lending, while the admin Mimir will be permanently removed in the next update. In the context of ThorChain, Mimir is a governance tool or mechanism that grants the ability to modify protocol parameters or make certain decisions — often used to allow for quick adjustments, typically by core contributors or a trusted group. The term originates from Norse mythology, where Mimir is a figure known for his wisdom and knowledge.

The focus will now shift to completing the Base rollout, shipping a SOL integration and continuing with the app layer development.

Despite this resolution, some members of the community continue to express concern over the handling of governance. Discussions around decentralization remain heated, with critics highlighting the risk of centralization in decision-making. Nevertheless, this episode reinforced the importance of node governance in ThorChain's evolution to ensure the community's voice remains central to the protocol's development moving forward.

— Macauley Peterson