A DeFi bank cannot rely on a government deposit insurance scheme. Usual takes a different approach: several layers of protection, including an insurance fund financed by protocol revenue. This article explains what protects you, what it covers, and what it does not.
The protection stack
Layer | What it protects against | Funded by |
1. Diversified collateral | Provider failure, custodial issues | Protocol design |
2. Smart contract audits | Contract bugs | ~20 audits, $7.5M bug bounty |
3. Pause mechanism | Rapid response to incidents | Multisig emergency committee |
4. Insurance fund | Residual bad debt, small losses | DAO treasury and allocations |
5. DAO treasury | Major incident response | 70% of protocol revenue |
6. Governance response | Long-term structural fixes | Community voting |
Each layer addresses a different class of risk. They are not redundant — they complement each other.
The Insurance Fund
Usual maintains an Insurance Fund as part of the protocol's risk framework. Its purpose is to absorb small, residual losses that cannot be prevented by other mechanisms. Common use cases:
Rounding or dust losses in complex operations
Small liquidation shortfalls in Usual Credit
Minor collateral discrepancies during rebalancing
Emergency injections to maintain peg during temporary stress
The Insurance Fund is not designed to backstop a catastrophic event (e.g., a major provider failure or a critical smart contract exploit). Those scenarios are handled by a combination of provider ring-fencing, governance response, and DAO treasury deployment.
How the Insurance Fund is funded
The Insurance Fund grows through:
Allocation from protocol revenue — a portion of revenue is directed to the fund via DAO decision
Fees from specific operations — for example, liquidation fees in lending markets
Occasional treasury allocations — when the DAO decides to strengthen the buffer
The exact size and composition of the Insurance Fund is published on-chain and in the docs.
The DAO treasury as a second layer
The DAO treasury holds approximately 70% of protocol revenue accumulated since the Revenue Switch was activated (January 2025). As of September 2025, the treasury was around $30M in diversified assets.
The treasury is not explicitly earmarked as an insurance pool, but it can be deployed via DAO vote to respond to major incidents:
Cover a critical shortfall
Buy USD0 or EUR0 during a depeg to restore the peg
Compensate users affected by a verifiable incident
Fund emergency audits or new security measures
The treasury is a significant defensive tool. Its existence is one of the reasons Usual can respond to adverse events without going to external parties for emergency funding.
What these protections do NOT cover
Be clear about the limits:
They are not deposit insurance — there is no sovereign guarantee
They do not cover user error — sending funds to the wrong address, falling for phishing, losing your recovery phrase
They do not guarantee peg stability at all times
They do not cover market losses — if you sell USD0 at $0.99 during a depeg, that loss is yours
They do not cover third-party failures outside Usual's scope — e.g., an exchange you use for trading USUAL going bankrupt
They are not a substitute for understanding risk — knowledge is your first line of defense
What the protections have covered in the past
The January 2025 bUSD0 (then USD0++) floor adjustment event is the most significant incident to date. The response combined:
Transparent communication
Governance-led adjustment of the floor price
No direct insurance fund payout, because the event did not produce a uncoverable loss
Post-mortem publication
Historically, Usual has been able to manage incidents through governance and design adjustments rather than insurance fund deployment. That is a sign of a healthy risk framework — the fund exists as a backstop, not as a routine tool.
How to know if you are covered in a specific scenario
The answer depends on the specific event. Key questions:
Is the loss caused by a Usual smart contract bug? → Bug bounty and governance response apply
Is the loss caused by your own mistake (wrong address, lost keys)? → Not covered, protect your own keys
Is the loss caused by a provider failure? → Ring-fencing and provider insolvency procedures apply, not insurance fund
Is the loss caused by market movement? → Not covered (this is normal trading risk)
Is the loss caused by a hack you witnessed and reported quickly? → Governance response, insurance fund deployment may apply
For major events, the DAO would coordinate a response via UIP.
Note: Insurance funds in DeFi are meaningful but not absolute. They handle edge cases and small losses. Large losses require governance action. Catastrophic losses may not be fully recoverable. Know the limits.
Technical note (for DeFi users): Insurance fund contracts and DAO treasury addresses are published on gov.usual.money. The Multi Collateral Controller's reserve calculations include buffers that function as a first-line defense against small discrepancies. See the docs for the full risk framework and insurance fund composition.
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