Usual Protocol, a rising star in the world of decentralized finance (DeFi), recently faced a wave of criticism from its community after a modification in the protocol’s yield-generating token led to a sell-off on secondary markets.
The USD0++ token, which is a locked-up version of Usual Protocol’s stablecoin USD0, briefly dropped below $1 on the Curve decentralized marketplace. This sudden drop caused panic among investors and liquidity providers, resulting in a 17% decline in the protocol’s governance token, USUAL.
The sell-off was triggered by a change in the redemption mechanism of the USD0++ token, introduced by the team without prior warning. This change allowed investors to redeem their locked-up tokens early at a price of 0.87 USD0, raising questions about the 1:1 exchange rate that was previously promised.
Initially, the USD0 stablecoin was backed by short-term government securities to maintain its price at $1. Stakers on Usual Protocol received USD0++ tokens with a four-year lock-up period, enticing investors with attractive rewards in the form of USD0 and USUAL tokens. This led to a significant increase in the protocol’s total value locked (TVL), reaching $1.87 billion.
However, the introduction of the “dual-path exit” feature caught users off-guard, causing chaos in liquidity pools where the token’s price was hardcoded at $1. This move was heavily criticized by the DeFi community, with some questioning the protocol’s intentions.
The Usual team defended their actions, stating that the design change was communicated in advance since October. They also announced the activation of a revenue switch, starting on Monday, to distribute the protocol’s earnings to governance token holders who stake their coins for the long term.
Despite the backlash, the team acknowledged the misunderstanding and pledged to improve communication with users moving forward. This incident serves as a cautionary tale for crypto investors, highlighting the risks associated with DeFi products that offer high yields through token incentives.
As of now, the USD0++ token is trading at 0.91 USD0 on the Curve pool, while the protocol’s total value locked has dropped below $1.6 billion. This episode underscores the importance of transparency and trust in the DeFi ecosystem, urging users to stay informed and vigilant in their investment decisions. The Importance of Mental Health in Today’s Society
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