StephaneSG

Why USD0++'s Depeg was Imminent I used to work on Morgan Stanley’s high-yield bond desk, so I’ve seen my fair share of distressed assets and quirky mechanisms. "High-yield" sounds fancy, but let’s call it what it is: trading the shittiest of shit bonds. Think defaults waiting to happen—the gutter trash of the credit world. What’s happening with USD0++ feels like déjà vu. Let me clarify: I’m not saying it’s trash—it’s collateralized by very safe assets, but let's say there are definitely some high-yield elements at play, along with a whole lot of tranching. As of writing, USD0++ is trading at $0.94, a 6% depeg from its supposed $1 peg on DEXes. Why? After the protocol's announcement of its “dual exit” option, hundreds of millions of USD0++ got dumped by DeFi traders, leaving its largest Curve pool wildly imbalanced. What is USD0 / USD0++? USD0 is a simple stablecoin. The real point of this entire game is to convert it to USD0++, the staked version. USD0++ is where the action happens because it earns you $USUAL tokens (we’ll get to those in a bit). But here’s the kicker: Holding USD0++ locks you in for four years—a detail many DeFi farmers glossed over. In essence, USD0++ functions as a zero-coupon bond—you lock up your money and earn nothing until the end of the term. 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. Before today’s announcement, you could redeem USD0++ 1:1. Now, that’s all changing. The Dual Exit Details for USD0++ Here’s how the new exit mechanisms work: 1. Conditional Exit: Redeem USD0++ at 1:1, but you forfeit part of your accrued yields. This “Early Unstaking” option launches next week - I'm guessing you'll need to burn $USUAL to exit. 2. Unconditional Exit: Redeem at a floor price, currently $0.87, which will gradually rise to $1 over four years. This option is for those who want to keep their upfront rewards. For those still HODLing their USD0++ There's a trade-off: 1. Choose the speculative strategy by staking USD0 to USD0++ to farm USUAL tokens and chase those headline-grabbing 60% yields. 2. Choose the Base Interest Guarantee option by locking up USD0++ for four years to earn the “real” risk-free yield of 4% annually, payable only at the end. But why lock up USD0++ for four years when you could buy liquid treasury-backed ETFs from BlackRock, exit anytime, with higher liquidity? DeFi users are farmers, and those shiny 60% yields are what they’re after. Option 1 was the only ‘real’ option—at least, until today’s announcement. The key takeaway: USD0++ is now being recalibrated to reflect its true nature and value: a zero-coupon bond plus a $USUAL token emission mechanism. But there are more layers to this. USUAL... USUALx... USUAL* Right now, the protocol keeps all the revenue from treasury bills, while participants are left with what looks like an ever-emitting token. There’s a fee-switch coming, though. Soon, 100% of the interest revenue from treasury bills will go to USUAL stakers, who will earn another token called USUALx (with a 10% fee for unstaking). It gets even more complicated: early investors receive a token called USUAL* (or USUAL Star), entitling them to 10% of all USUAL emissions and 33% of penalty fees. Lots of Moving Pieces Here’s how to read it: 1. USD0 Holders: surrendering your interest yield to use the stablecoin, effectively financing this game for the other counterparties—USD0++, USUAL holders, USUALx holders, and USUAL* holders. 2. USD0++ holders: surrendering your interest yield for 4 years, effectively financing this game by betting that $USUAL tokens emitted will be worth more than the interest yield. 3. USUAL / USUALx stakers: betting on the USUAL token to rise / capturing the interest yield surrendered by USD0 and USD0++ holders. 4. USUAL* holders: get 10% of all $USUAL emissions, as well as 33% of penalty fees, receiving a percentage of the value chain. Just my two gweis, and as always, DYOR