> For the complete documentation index, see [llms.txt](https://docs.usual.money/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.usual.money/archive/usual-stability-loan-euler.md).

# Usual Stability Loan (Euler)

## Overview

USL functions similarly to MakerDAO’s **D3M** or Frax’s **AMOs**: a protocol-controlled mechanism intended to stabilize the bUSD0 peg while enabling predictable borrowing.

Users deposit **bUSD0** as collateral and borrow **USD0** at a low, predictable rate. Because the USL oracle is **hardcoded to 1:1**, liquidations are driven by **interest accrual**, not secondary-market price moves.

***

## Key advantages

* **Liquidity injection**: unlocks substantial liquidity for bUSD0 holders by enabling borrowing against locked positions.
* **Peg stabilization**: when bUSD0 trades below $1, USL enables arbitrage loops that create natural buy pressure toward parity.
* **Attractive yields**: users can benefit from the discount-to-par on bUSD0 and leverage opportunities.
* **Increased DAO revenue**: borrowing interest/fees flow to the DAO, increasing income per **USUAL** token.
* **No undercollateralization risk (protocol-level)**: only **USD0 not backing bUSD0** can be allocated to the lending vault, enforced by smart contracts.
* **No DAO solvency risk**: bUSD0 collateral remains locked; if a borrower defaults, the protocol **seizes and burns the bUSD0**, creating **no bad debt**.
* **High predictability**: users can lock a fixed rate and estimate a liquidation date in advance.

***

## USL on Euler: vault design and parameters

USL is deployed on Euler as an **ungoverned vault**. In this context, “ungoverned” means **core parameters are immutable after deployment**. The DAO’s governance control is limited to the **oracle router**.

| Parameter         |                Value | Notes                                                                         |
| ----------------- | -------------------: | ----------------------------------------------------------------------------- |
| **LTV**           |                 0.88 | Users can borrow up to **0.88 USD0 per 1 bUSD0**                              |
| **LLTV**          |               0.9999 | Liquidation threshold: triggers when debt reaches **99%** of collateral value |
| **Oracle**        | Hardcoded at **1:1** | **1 bUSD0 is always valued at 1 USD0**, regardless of market price            |
| **Interest rate** |                Fixed | Initially **5% APR**; later reduced to **1.5%.**                              |
| **Market type**   |           Ungoverned | Parameters immutable once deployed                                            |

### Why the oracle is hardcoded at 1:1

Each **bUSD0** is backed by exactly **1 USD0** locked in the protocol and redeemable **1:1 at maturity (June 2028)**. For this reason, USL values bUSD0 at **par** (1 bUSD0 = 1 USD0) regardless of secondary-market price.

**Implication:** liquidations are driven by **borrowed amount + accrued interest/fees**, not by bUSD0 market volatility.

***

## Liquidation mechanics and timeline

Liquidation occurs when the position’s debt reaches the **0.99 LLTV** against collateral value (at the hardcoded 1:1 oracle).

At the initial configuration (**0% base rate + 10 bps protocol fee**, **0.88 LTV**), a borrower would not reach the **0.9999 LLTV** for an extended period—safely beyond the bond maturity date (**June 2028**). This gives borrowers exceptional predictability regarding if/when liquidation could occur.

***

## How the leverage loop works

USL enables an iterative leverage strategy (“looping”) that increases exposure:

1. **Lock** 1 USD0 into **1 bUSD0** (1:1 conversion)
2. **Borrow** **0.88 USD0** against the 1 bUSD0 (88% LTV)
3. **Buy** some **bUSD0**
4. **Borrow again USD0** against bUSD0
5. **Repeat** to increase exposure

### Collateral safety guarantee (protocol constraints)

USL can only lend **USD0 sourced from the DAO treasury,** not USD0 that is already backing bUSD0. This is enforced at the smart-contract level and prevents the protocol from lending out assets required to maintain bond backing.

If a borrower defaults, the protocol seizes the **bUSD0** collateral and **burns it**, preserving full collateralization for all remaining USD0.

***

## Zero-coupon bond evolution (UIP-11)

USL underwent a major change following **UIP-11**, the **“Disinflation Shock”** governance proposal implemented in two phases (**December 2025** and **January 2026**). After UIP-11, bUSD0 positions in USL were restructured as **pure zero-coupon bonds**.

### What changed

| Aspect                               | Pre-UIP-11                            | Post-UIP-11                            |
| ------------------------------------ | ------------------------------------- | -------------------------------------- |
| **USUAL emissions on USL positions** | Active (**41.6%** of daily emissions) | **0%** (fully eliminated)              |
| **Yield source for USL borrowers**   | USUAL rewards + leverage              | **Discount-to-par only** (zero-coupon) |
| **Interest rate model**              | Fixed **5% APR**                      | **1.5% APR**                           |
| **Daily USUAL to USL**               | \~**1,139,094 USUAL/day**             | **0 USUAL/day**                        |

### Zero-coupon mechanics (discount-to-par)

With USUAL rewards removed, the yield within USL comes entirely from **bUSD0 converging to face value at maturity**:

* At a floor price of **$0.92** with \~**2.75 years to maturity** (June 2028), the implied yield is approximately **2.9% APR** (unleveraged).
* With maximum leverage (approximately **15×** under the revised parameters).

This change reframed USL from a “farm-and-dump” dynamic into a fixed-income-style product where returns primarily come from **convergence to par**, which is a familiar model for traditional finance participants.

***

## Summary

| Parameter                         | Value                        |
| --------------------------------- | ---------------------------- |
| **Platform**                      | Euler (ungoverned vault)     |
| **Collateral**                    | bUSD0 (bonded USD0)          |
| **Borrow asset**                  | USD0                         |
| **LTV**                           | 0.88                         |
| **LLTV (liquidation)**            | 0.9999                       |
| **Oracle**                        | Hardcoded 1:1 (bUSD0 = USD0) |
| **Max theoretical leverage**      | \~8.33× at 1 bUSD0 = 1 USD0  |
| **Current borrowing fee**         | 1,5% yearly                  |
| **USUAL emissions (post-UIP-11)** | 0% (pure zero-coupon model)  |
| **Bond maturity**                 | June 11, 2028                |