# Usual Faces Major Crisis in DeFi World

In the decentralized finance (DeFi) landscape, the once-prominent Usual is facing a substantial crisis. Usual’s designed stablecoin, USD0++, promised investors both stability and high yields, but its price has plummeted by 6% from its dollar peg, now trading at $0.94. This incident starkly illustrates how complex financial structures can trigger issues within the DeFi ecosystem.

# USD0 and USD0++: Where Did the Problem Start?

Usual operated on two main tokens: USD0 and USD0++.

– **USD0**: A simple stablecoin pegged to the dollar.
– **USD0++**: A token created by staking USD0, offering investors rewards in $USUAL token.

USD0++ provided investors with two options:

**Speculative Strategy**
Investors could convert USD0 to USD0++ and receive $USUAL tokens as rewards, aiming for an annual yield of up to 60%. However, this high-risk strategy was effective only if the value of $USUAL was maintained or increased.

**Stable Strategy**
Alternatively, investors could hold USD0++ for four years to earn a fixed annual interest of 4%. However, this interest was payable only at the end of the four-year period, with limited liquidity options available to investors during the holding period.

Both options imposed a significant burden on investors. Particularly, the design of USD0++, which required long-term capital lock-up, was misaligned with the tendencies of DeFi investors who often prefer short-term gains and high liquidity.

# ‘Dual Exit’ Mechanism Triggers Sell-Off

Worsening the situation was the introduction of Usual’s new ‘Dual Exit’ mechanism, forcing investors to choose between two options:

– **Conditional Exit**: Redeem USD0++ at $1, but with the caveat of forfeiting a portion of the accrued yield.
– **Unconditional Exit**: Redeem immediately at the current price of $0.87, with a gradual increase to $1 over four years.

Following the mechanism’s announcement, a large-scale sell-off ensued. Most investors, aiming to minimize short-term losses, sold USD0++ at lower prices, which led to a liquidity crunch in the market and further drove down the price of USD0++.

# Liquidity Shortage and Market Turmoil; Internal Conflicts Raise Concerns

The massive sell-off by investors resulted in a significant imbalance in major liquidity pools. Notably, liquidity for USD0++ on key DeFi platforms like Curve declined sharply, exacerbating market turmoil.

The fall in USD0++ price, from its $1 peg to $0.94, instilled fear among investors, triggering a vicious cycle of further selling. This issue highlighted not just the consequences of individual investor actions, but also the design flaws of USD0++ and the lack of trust within the DeFi ecosystem. The Usual Money ecosystem entangled several stakeholders:

– **USD0 Holders**: Utilized only the stablecoin, without earning interest.
– **USD0++ Holders**: Locked funds for four years, with rewards in $USUAL tokens.
– **$USUAL/$USUALx Stakers**: Earned based on interest forfeited by USD0 and USD0++ holders.
– **$USUAL Holders**: Received dividends from 10% of $USUAL issuance and 33% of penalty fees.

Particularly contentious was the relationship between Usual Money founder Adli and MEV Capital. Adli, known as Adli.eth, was not only the architect of Usual Money but also a shareholder in MEV Capital, benefiting from both entities. This conflict of interest led to several issues:

– **Deprecation Acceleration**: After the depreciation of USD0++ began, MEV Capital launched a new market (USD0++ Naked) where USD0++ could be traded at the lower price of $0.87, deepening losses for existing investors.
– **Dual Profit Structure**: MEV Capital profited approximately $100,000 daily in performance fees based on the losses of USD0++ holders. This structure translated to losses for investors and gains for MEV Capital.
– **Lack of Transparency**: The relationship between Adli and MEV Capital was undisclosed during the project’s initial stages and was only revealed after the crisis unfolded, leading investors to suspect possible intentional concealment of information by the designers.

The USD0++ de-pegging incident has laid bare the structural issues within the DeFi ecosystem. The combination of intricate designs and overly ambitious yield promises ultimately transferred significant risks to investors.

# Lessons from the Crisis

– **High Yield Equals High Risk**: Investors must thoroughly scrutinize the risks hidden behind complex financial designs promising high yields.
– **Transparency and Trust Are Crucial**: Internal conflicts of interest or undisclosed information can erode the trust of the entire ecosystem.
– **Need for Simplification in DeFi Projects**: DeFi must operate based on trust, necessitating clear and transparent designs to enhance investor protection.