Original author: Ouroboros DeFi
Compiled by: Luke, Mars Finance
Introduction: Ouroboros DeFi methodology
At Ouroboros DeFi Yield Fund, our investment strategy is always rooted in identifying and providing liquidity to high-quality projects. As liquidity providers, we focus on directing liquidity to the protocols we are most confident in. Our belief is simple: quality projects can achieve listings on top CEXs, thus obtaining premium valuations. A good recent example is Ether.Fi in the LRT vertical, where early recognition of its quality and successful liquidity allocation led it to exhibit significant valuation premiums compared to similar projects.
Investment logic: Usual Money
When Usual Money came into our investment view, several signs indicated it was a high-quality project.
Concise yet powerful token economics: The concept of Usual Money appears simple on the surface but has profound implications: it is a decentralized T-Bill that commits to distributing 90% of its value to the community. Following HYPE's TGE (Token Generation Event), we have seen the success of this model, where token economics are highly aligned with community incentives, creating exponential growth.
Value growth to $USUAL: Usual distributes its governance token $USUAL to stablecoin holders instead of T-Bill yields. It then uses most of the T-Bill yields to repurchase $USUAL governance tokens.
Token value and TVL flywheel effect: Repurchasing $USUAL governance tokens will link the quantity with the token price. We like Usual's TVL flywheel effect— as TVL increases, the value gained by the tokens also increases, leading to a rise in token price, which in turn brings more attractive annual percentage yield (APY).
Valuation framework:
$USUAL token valuation is relatively straightforward, providing the market with a convenient valuation floor:
$100M TVL (total value locked) generates $4M in income at a 4% T-Bill yield.
At a 25x price-to-earnings (P/E) ratio, this implies a fully diluted valuation (FDV) of $100M, or 1x FDV/TVL.
At 20% circulation, this implies a market capitalization (MC) of $20M, with $5M in repurchase support, forming a solid valuation floor.
In comparison, Ethena's trading multiple is 2-3x FDV/TVL.
Listing potential:
Strong team: The team behind Usual Money makes the project’s position for listing on top exchanges very robust. Pierre Person is the CEO and co-founder of Usual Money; he was a member of the French Parliament and contributed to the country's cryptocurrency regulatory framework.
Real income: Recently, top exchanges like Binance expressed a preference for listing projects with high value accumulation. With a TVL of $300M (at the time) and a 4% yield on U.S. Treasury Bonds, Usual's annual income was about $12M, placing it among the top 30 projects in value accumulation.
Binance's listing further validated our prediction that high-quality projects and teams could achieve listings on top exchanges.
Pricing error opportunity
Once we confirmed that Usual was a project with listing potential, we began to look for pricing error opportunities. Our monitoring system had flagged Usual's points as significantly undervalued long ago.
The PT market once priced the project below 15% APY, implying that for a project with TVL of $200M-$300M, the FDV was $150M, and the market cap was around $20M. In contrast, Ethena was priced at 2-3x FDV/TVL, while Usual was priced at 0.5x FDV/TVL.
We captured this pricing misalignment by leveraging USD 0++ borrowing on Morpho. At the time, USDC lending rates on Morpho were around 10-15% (sometimes 20%). Although the borrowing costs were high, we viewed it as an asymmetric directional bet opportunity, believing that the fundamentals of the project were undervalued. We adhered to this pricing misalignment and successfully captured it.
Results and validation: Bull market expectations realized
Our investment logic was validated following the announcement of the Binance listing, which quickly corrected the undervaluation. This outcome reinforced our view: once recognized by the broader market, high-quality projects will achieve premium valuations. This outcome validated our investment philosophy: early identification of quality projects and confidence in our analysis can yield excess returns.
Conclusion
Usual Money embodies the factors that the Ouroboros DeFi Yield Fund focuses on when searching for projects to deploy liquidity:
High-quality projects
Recognizing that top projects can achieve early listings and premium valuations
Capturing pricing error opportunities in non-obvious places (e.g., by paying points through Morpho)
In this instance, the pricing error we identified provided us with a yield opportunity while embedding asymmetric directionality.
