What Happened to USD0++ and Usual?

Prologue: The Promise of Stability

In DeFi, stability is elusive. USD0++ emerged as an attempt to solve that problem. It wasn’t a typical stablecoin pegged to $1. Instead, it was built on a bond-like design, backed by real-world treasury yields, with a focus on long-term growth.

The system worked like this:

• Users staked USD0 and upgraded it to USD0++.
• In return, they earned $USUAL tokens, which gained value from the protocol’s returns.
• The entire mechanism was powered by a flywheel: treasury yields backed USD0++, stakers provided locked liquidity, and $USUAL rewards incentivized participation.

For months, it seemed to work flawlessly. USD0++ became a favorite among DeFi investors who wanted more than speculative profits — it promised stability and predictable returns in a chaotic market. Liquidity stayed high, and confidence grew.

But the system’s complexity hid risks. Beneath its polished surface, cracks were forming. And when those cracks appeared, they were impossible to ignore.

A Sudden Depeg

The collapse began with a single announcement. Usual Protocol stated that the hardcoded $1 redemption price for USD0++ would drop to $0.87.

This decision blindsided the community. Within hours, USD0++ depegged, falling to $0.935. Liquidity providers rushed to withdraw their funds, leaving Curve pools dangerously imbalanced. Leveraged positions in Morpho vaults were liquidated, triggering millions in losses.

What made this event so disruptive?

• Abrupt change in rules: Users trusted the $1 redemption guarantee. The sudden drop to $0.87 felt like the rules had been rewritten overnight.
• Loss of trust: Stability was the foundation of USD0++. Once it was questioned, panic spread rapidly.
• Liquidity crisis: Curve pools, which provided trading volume and stability for USD0++, collapsed under the pressure of mass exits.

realized 700k loss on 7.5M, wicked to 0.87 Source: X

This wasn’t just a technical failure. It was a betrayal of expectations. Many users had locked their funds for years, believing they were investing in something safe. That trust was shattered in an instant.

What Went Wrong?

The $0.87 floor price wasn’t a random decision. Usual Protocol introduced it to protect the ecosystem from bad debt. The idea was to ensure the protocol’s long-term health by preventing a complete collapse in value.

Here’s what changed:

1. Conditional Exit: Users could redeem USD0++ at $1, but they had to forfeit some of their $USUAL rewards.
2. Unconditional Exit: Users could redeem immediately at $0.87. This floor price would gradually rise to $1 over four years.

On paper, this seemed logical. But it exposed deeper problems:

• Misaligned expectations: Users believed USD0++ was a stablecoin. In reality, it functioned more like a bond tied to the protocol’s tokenomics.
• Poor communication: The complexity of the system wasn’t explained clearly. Many users were caught off guard by the floor price change.
• Psychological impact: The sudden devaluation created panic, eroding the trust that held the system together.

This wasn’t just a financial failure — it was a failure to communicate. In DeFi, complex systems need to be transparent and simple enough for users to understand. When there’s a disconnect between how a system works and how it’s perceived, chaos is inevitable.

Trust Erodes

The damage from the depeg was immediate and severe. What started as a technical adjustment quickly spiraled into a full-blown crisis.

Here’s what followed:

• Liquidity providers pulled out: Curve pools, which held large amounts of USD0++, became imbalanced as users rushed to withdraw funds. The result was massive volatility and an even deeper depeg.
• Leveraged positions were wiped out: Many users had taken out loans or used leverage through Morpho vaults, believing USD0++ was stable. Liquidations triggered cascading losses, compounding the damage.
• Long-term stakers felt betrayed: These users had locked funds for years under the assumption of stability. The abrupt change in redemption rules made them feel abandoned by the protocol.

Usual Protocol tried to fix the situation by introducing features like Early Unstaking to allow 1:1 redemptions. But the damage was done. Confidence in the system had evaporated.

Usual Protocol’s Defense

Usual Protocol responded quickly to the crisis. Within days, the team acknowledged the backlash and admitted their communication had been inadequate. They committed to improving transparency and outlined immediate steps to stabilize the situation.

Here’s what they proposed:

1. Early Unstaking Feature:

• Users could redeem USD0++ at $1 by forfeiting part of their accumulated $USUAL rewards.
• The forfeited percentage would depend on withdrawal demand.
• Usual promised this feature would launch within a week, offering relief to those who felt trapped.

2. Revenue Switch Activation:

• Approximately $5 million in monthly protocol revenues would be distributed to $USUALx holders.
• This move aimed to reassure long-term investors and highlight the protocol’s ability to generate tangible value.

These actions showed Usual’s intent to address immediate concerns while demonstrating the protocol’s long-term viability. However, many in the community remained unconvinced. The sudden redemption rule change had shaken trust, and some users felt these measures were too little, too late.

Lessons for DeFi

The USD0++ incident exposed deeper challenges facing DeFi protocols. While Usual Protocol’s missteps were specific, the underlying issues resonate across the industry.

Here are three key lessons for DeFi developers and users:

1. Governance and User Inclusion:

• Decisions with major user impact — like changing the USD0++ redemption price — must be subject to governance. A DAO vote or advance communication could have given users more control and reduced the backlash.
• Failing to include the community in these processes erodes trust in decentralized systems.

2. Simplicity Over Complexity:

• USD0++ had creative tokenomics, but the system was too complex for many users to fully understand. When DeFi mechanics become opaque, even small disruptions can cause outsized fallout.
• Developers should prioritize simplicity to ensure users fully grasp the risks and rewards of a protocol.

3. Aligning Mechanics with Expectations:

• Marketing USD0++ as a “stablecoin” misled users. In reality, it behaved more like a structured bond with a dynamic redemption price.
• Protocols must ensure that what they promise matches how their systems function. Misalignment creates confusion, frustration, and distrust.

This wasn’t just a failure of tokenomics. It was a failure of communication and governance — a lesson the entire DeFi ecosystem should take to heart.

Can USD0++ Recover?

Rebuilding trust is difficult, but not impossible. Usual Protocol’s future depends on how well they deliver on their promises and whether they can realign their system with user expectations.

Here’s what recovery could look like:

1. Delivering Promised Features:

• Early Unstaking must launch on time, with a smooth and transparent process. This feature is critical for giving users an immediate way out of their positions.
• Consistent revenue distributions to $USUALx holders are also essential to demonstrate the protocol’s stability and income potential.

2. Restoring USD0++ Demand:

• Natural Recovery: The floor price for USD0++ is designed to gradually rise back to $1 over four years. If users are patient and the system stabilizes, this gradual appreciation could restore confidence.
• New Participants: To grow its TVL (total value locked), Usual needs to attract new users. If it can demonstrate value through rewards and improved communication, new participants may re-enter the system.

3. Addressing Reputational Damage:

• Clearer communication moving forward is essential. Users need to understand what they’re investing in, and all risks must be disclosed upfront.
• Usual must also improve governance, giving users a stronger voice in decisions that directly affect their funds.

Without these changes, USD0++’s recovery will be an uphill battle. Transparency, user inclusion, and execution are the key factors that will determine whether the protocol can move past this incident.

A Cautionary Tale

The USD0++ crisis revealed how quickly things can unravel in DeFi. A system that promised stability and long-term growth collapsed under the weight of sudden changes and misaligned expectations.

For developers:

• Prioritize simplicity in tokenomics.
• Communicate changes clearly and involve users through governance.

For users:

• Understand the mechanics of any protocol before committing funds. Marketing alone is never enough to gauge risks.

Trust is DeFi’s foundation. Once lost, it’s incredibly hard to rebuild. The Usual Protocol team has the tools to recover, but whether they succeed depends on execution and community support.

The lessons from USD0++ extend beyond one protocol. They serve as a reminder of the fragile balance between innovation, transparency, and user trust in decentralized systems. The DeFi ecosystem must learn from this event — or risk repeating it.

Astraea is an analyst with a rich background in finance, having worked at various research firms where he gained deep insights into investments and corporate strategies. Now, he blends this expertise with a unique perspective, crafting content for those venturing in finance, tech, or crypto. For more information check out Ascendant Finance.

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A Word of Caution

Nothing in this article is financial advice. This was written purely for entertainment purposes, and we don’t hold or own any of the coins mentioned. If you’re tempted to jump into the meme coin frenzy, remember to do your own research — or at least check if the developer is live-streaming from a dog cage or toilet first.