Usual Stability Loans (USL) unlock liquidity by allowing users to borrow USD0 against their USD0++ at a fixed 5% rate. This ensures stability, reduces selling pressure, and reinforces USD0++’s peg—all while users keep earning rewards.
Introduction: The Need for Smart Liquidity
In traditional finance, accessing liquidity without selling assets is a well-known practice. Homeowners take out mortgages instead of selling their property. Investors use margin loans to borrow against their stock portfolios. This allows them to access funds while keeping their assets intact.
In DeFi, we have a similar mechanism: over-collateralized borrowing. Platforms like Aave and Morpho allow users to deposit assets such as ETH or BTC as collateral and borrow stablecoins (like USDC or DAI) against them. Borrowers can use this liquidity while their collateral remains locked, and they can repay the loan anytime to retrieve their assets.
Within the Usual ecosystem, there is USD0++, a token that represents locked USD0. While USD0++ is freely tradable on secondary markets, it cannot be redeemed at 1:1 parity before its maturity. Because of this, its market price can fluctuate between its floor price (0.87, increasing to 1 over time) and 1 USD0, reflecting supply, demand, and time left until redemption.
For users, this creates a challenge: while they may need liquidity, they don’t necessarily want to sell their USD0++ which yield USUAL tokens—whether to avoid a discount on secondary markets, to keep earning rewards, or simply to retain exposure.
Usual Stability Loans (USL)
USL is a decentralized borrowing mechanism that allows users to borrow USD0 against their USD0++.
This means users can unlock liquidity while keeping their USD0++ and its rewards, instead of having to sell it on the market. Unlike traditional DeFi lending platforms, USL operates with a fixed 5% interest rate, ensuring predictable borrowing costs that remain competitive even in volatile market conditions.
Beyond just borrowing, USL plays a critical role in stabilizing USD0++. By enabling more liquidity and potential leveraging strategies, it creates buy pressure, which helps USD0++ maintain its get closer to its parity of 1 USD0.
But how does USL actually work? Let’s break it down.
How does USL work?
At its core, USL is a lending system, meaning it follows the standard structure of borrowing against collateral.
Step 1: Depositing USD0++ as Collateral
To borrow through USL, users deposit USD0++ as collateral while still earning USUAL rewards, locking it in the lending system while keeping exposure to its price and rewards. Instead of selling on the market, this allows them to access liquidity while still holding their USD0++.
Example: if a user deposits 1,000 USD0++, they can now borrow up to against it.
Step 2: Borrowing USD0 (Loan-to-Value: 83%)
Once USD0++ is deposited, users can borrow up to 83% of its value in USD0. This ensures the system remains overcollateralized and secure.
Example: If a user deposits 100 USD0++, they can borrow up to 83 USD0.
Step 3: Fixed 5% Interest Rate Accrual
Unlike variable-rate markets where borrowing costs fluctuate, USL has a fixed 5% annual interest rate. Borrowers always know their costs in advance, ensuring predictability and stability.
Example: if a user borrows 83 USD0, after one year, they will owe 88 USD0 (including interest).
Step 4: Repayment & Loan Closure
Users can repay their loan at any time by returning the borrowed USD0 plus accrued interest. Once repaid, their USD0++ is unlocked and can be withdrawn.
Example: If a borrower repays 88 USD0 after one year, they regain their 100 USD0++ collateral.
Step 5: Liquidation Safeguard (Threshold: 99.99%)
If a borrower’s debt reaches 99.99% of their collateral value, their position is liquidated to protect the system. Since the fixed 5% interest rate accrues predictably, liquidation takes over 3.5 years for a maxed-out loan.
Example: If a borrower takes the full 83 USD0 loan, liquidation would only occur if the total owed reaches 99.99 USD0—giving them years to manage their position.
Protocol-Level Technical Explanation
On the backend, USL operates through an Euler vault, with the Usual DAO acting as the sole liquidity provider. Simillar to DAI D3M or FRAX AMO, the DAO deposits USD0 which are collateralized by the Euler vaultshare, which is represented by dUSD0. Borrowers deposit USD0++ collateral to borrow USD0, while the DAO retains dUSD0 as a claim on the repaid funds and interest.
The Role of USL in Stabilizing USD0++
USL isn’t just a borrowing tool—it also plays a key role in stabilizing USD0++ and reinforcing its value within the Usual ecosystem. By allowing users to borrow USD0 against their USD0++, USL injects liquidity, reduces selling pressure, and creates demand for USD0++.
Since USD0++ is freely tradable but cannot be redeemed at parity before maturity, its price fluctuates between its floor price and 1 USD0. When USD0++ trades below 1 USD0, users looking for liquidity have limited options. They can either sell on the secondary market—potentially at a discount—or use Early Redemption, which involves a fee. Neither of these options directly brings USD0++ back toward parity.
USL changes this dynamic by creating buy pressure when USD0++ is trading below 1 USD0. Users who borrow USD0 can use it to purchase more USD0++, increasing demand and helping its price move closer to parity. This effect is amplified when users leverage the process, repeatedly borrowing and buying USD0++ to earn more rewards. Since USL is designed to be fully collateralized and risk-managed, this liquidity injection happens without adding solvency risks to the system.
Conclusion: A Win for Users and the Usual Ecosystem
For users, USL provides a low-cost, predictable borrowing option that allows them to access liquidity without selling their USD0++. This means they can keep earning rewards while putting their assets to work, rather than being forced to sell at a discount or pay an Early Redemption fee. The fixed 5% interest rate ensures stability, making it more competitive than variable-rate lending markets, where borrowing costs can spike unexpectedly. Those who understand market dynamics can also strategically leverage USL to generate returns, especially when USD0++ is below 1 USD0, thanks to price appreciation offsetting part of the debt.
For the Usual ecosystem, USL is a key driver of liquidity and stability. Without it, users seeking liquidity would have only two options: selling on secondary markets or Early Redeeming at a cost. USL reduces sell pressure by offering a structured borrowing alternative, while simultaneously increasing demand for USD0++. As users borrow and loop, the protocol benefits from higher capital efficiency and enhanced price stability. Additionally, the interest generated from USL loans becomes a revenue stream for the DAO, strengthening the long-term sustainability of the ecosystem.
By providing low-cost, predictable borrowing, reinforcing USD0++ stability, and ensuring the ecosystem remains liquid and efficient, USL is a powerful financial tool. It is an essential piece of Usual’s long-term vision—a vision built on stability, capital efficiency, and sustainable DeFi innovation.
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