How does ETH0 work?
Last updated
Last updated
ETH0 adapts Usual’s proven stablecoin architecture to an ETH-based model using wstETH as collateral. Users mint ETH0 by depositing wstETH into the protocol’s smart contract. The system ensures that no more ETH0 can exist than the ETH value held in collateral – every token is 100% backed by at least an equivalent amount of staked ETH. ETH0 tokens maintain a strict 1:1 peg to ETH through controlled minting and redeeming governed by price oracles. A Chainlink oracle feed tracks the wstETH/ETH exchange rate, and if any extreme deviation or issue with Lido’s staked ETH is detected, an automatic pause can be triggered as a safety measure. These robust safeguards ensure that 1 ETH0 is always redeemable for ~1 ETH worth of collateral under normal conditions.
Notably, the staking rewards from the underlying wstETH are not paid out by rebasing ETH0’s price. Instead, ETH0 holders receive reward distributions in the form of USUAL governance tokens, allowing them to outperform the base ETH staking yield. In other words, as the wstETH collateral earns staking interest over time, those earnings are passed to ETH0 holders via USUAL token rewards. This design means users enjoy the benefits of ETH staking yields (and then some), without needing to manage separate staking or reward contracts. All minting, redemption, and reward mechanisms are executed on-chain, with upgradeable contracts and role-based governance controls adding further reliability.
Minting ETH0 is straightforward and permissionless. Here’s how users can obtain ETH0:
Acquire wstETH: Obtain Lido’s wrapped staked Ether (wstETH), which will serve as collateral. You can get wstETH by staking ETH via Lido (and wrapping the stETH) or by purchasing wstETH on the open market.
Deposit Collateral: Connect your wallet to the Usual app and deposit your wstETH into the ETH0 minting contract. (You’ll need to approve the wstETH token for use by the contract on your first deposit.)
Receive ETH0: Upon deposit, the protocol will mint an equivalent amount of ETH0 and transfer it to your wallet. Minting is done 1:1 by value – for example, if you deposit wstETH worth 10 ETH, you will receive 10 ETH0 tokens (minus any minimal protocol fees, if applicable). Your wstETH is now held in the protocol’s treasury as collateral backing the newly minted ETH0.
After minting, your ETH0 can be freely used in the DeFi ecosystem (as if it were ETH) while the deposited wstETH remains stored to back the value of ETH0. The entire mint process is on-chain and does not require any permission or gatekeeper – if you have the collateral, you can mint at any time.
ETH0 tokens can be redeemed (converted back to the underlying staked ETH collateral) in two ways:
On-Chain Redemption: Return your ETH0 to the Usual Protocol via the dApp’s redeem function (or directly calling the smart contract) and withdraw the underlying wstETH. Because each ETH0 is pegged 1:1 to ETH, you will receive roughly 1 ETH worth of wstETH for each ETH0 redeemed (subject to exact oracle rates at that moment). This process is permissionless and can be done at any time by any holder of ETH0. Redemptions of ETH0 on the primary market incur a 2 bps fee to protect against arbitrage abuse. Once you receive wstETH, you may unwrap it to stETH and initiate a withdrawal through Lido to get actual ETH, or simply trade the wstETH for ETH on the market.
Secondary Market Swap: Alternatively, you can sell or swap ETH0 on the secondary market (DEXs or, in the future, possibly centralized exchanges) for ETH or other assets. Since ETH0 is fully redeemable on-chain, its market price is expected to stay pegged to real ETH – if the price deviates, arbitrageurs can buy the cheaper asset and redeem or mint the other to profit, which pushes the price back in line . This arbitrage mechanism, similar to that of other stablecoins, helps maintain ETH0’s 1:1 parity with ETH even when trading on open markets.
In practice, most users who want to convert back to plain ETH quickly will either redeem for wstETH and then swap it for ETH, or directly trade their ETH0 for ETH, depending on which option has better rates at the time. The key point is that ETH0 is always interchangeable with its equivalent value in ETH, thanks to the underlying collateral and the open arbitrage/redemption pathway.
