Written by: 0xjs@Golden Finance

'Of The People, By The People, For The People' is the most famous speech by President Abraham Lincoln.

'Of The People, By The People, For The People' is the slogan of Sun Yat-sen's Three People's Principles.

Once these ideas are proposed, they firmly occupy the minds of the people.

In the crypto industry, 'user sovereignty, community ownership' is the same. Projects that ignore users and communities due to first-mover advantages and other factors will eventually face challenges.

During the recent decline, a stablecoin protocol targeting USDT/USDC, Usual, has performed excellently, attracting the attention of the crypto community.

What is Usual?

According to official documentation, Usual is a secure and decentralized fiat-backed stablecoin issuer that aggregates a growing number of RWA tokens (mainly tokenized US Treasury bonds) from Hashnote, BlackRock, Ondo, Mountain Protocol, M^0, etc., transforming them into permissionless, on-chain verifiable, composable stablecoin USD0. It also redistributes ownership and governance rights through the governance token USUAL.

In summary, Usual aims to be on-chain Tether.

Usual targets two key issues of USDT/USDC: user ownership and bank bankruptcy risk.

1. User ownership. USDT and USDC are the two largest stablecoins by market cap, with USDT's market cap exceeding $140 billion and USDC's market cap exceeding $42 billion. According to public data from Tether, the issuer of USDT, Tether's profit for the entire year of 2024 could reach $10 billion. Circle's annual profit can reach $3 billion. However, the earnings generated from the assets provided by these crypto users are fully taken by Tether and Circle, with users having no rights. Usual will not privatize the profits generated from USDT and USDC like Tether and Circle, but instead redistribute power and earnings back to the community (Of The People, By The People, For The People). 100% of Usual's protocol income flows into the treasury, with 90% distributed to the community through governance tokens.

2. Bank bankruptcy risk. A significant portion of USDT and USDC is backed by commercial banks, which brings risks of safety and stability due to fractional reserve banking. Usual introduces a new stablecoin issuance method, where the underlying assets of its stablecoin are 100% backed by short-term US Treasury bonds as collateral, not tied to the traditional banking system, thus avoiding the risk of bank bankruptcies.

Usual primarily targets these two gaps of Tether/Circle.

In other words, Usual can be seen as a 'vampire' attack on USDT/USDC, similar to Sushi's 'vampire' attack on Uniswap during the summer of DeFi in 2020.

So how does Usual achieve this?

Analysis of Usual's working mechanism

Usual primarily consists of five core tokens: the stablecoin USD0, LST token USD0++, governance token USUAL, staked governance token USUALx, and contributor token USUAL*.

USD0: USD0 is Usual's stablecoin. Users can exchange USD0 for USDC or USYC at a 1:1 ratio.

USD0++: LST tokens generated from USD0++ staking. Holding USD0++ can earn USUAL token incentives.

USUAL: USUAL is the governance token of Usual.

USUALx: Staking USUAL can earn USUALx, and users holding USUALx can activate governance rights and receive USUAL rewards. USUALx can vote on the governance of the Usual protocol, such as future supported collateral sources.

USUAL*: USUAL* is the founding token of the Usual protocol, allocated to investors, contributors, and advisors, with privileges distinct from USUA tokens.

The following figure illustrates Usual's product and user flow.

The following will elaborate on this.

Minting of USD0

The USD0 token can be minted in two ways through Usual:

Direct minting: By depositing eligible RWA into the protocol, receiving an equivalent USD0 at a 1:1 ratio.

Indirect minting: By depositing USDC into the protocol, receiving USD0 at a 1:1 ratio. In this method, a third party, known as a collateral provider (CP), provides the necessary RWA collateral, allowing users to obtain USD0 without directly holding RWA. At the beginning of the protocol, all orders below 100,000 USD0 will be redirected to secondary market liquidity.

The above image takes USD0's first collateral source USYC as an example; currently, Usual's first collateral comes from Hashnote’s USYC. USYC is the on-chain representation of Hashnote International Short Duration Yield Fund (SDYF), which primarily invests in reverse repos and short-term US Treasury bonds.

USD0++

USD0++ is the liquid staking token (LST) of USD0. It is a composable token representing staked USD0, functioning similarly to a liquid savings account. For each staked USD0, Usual mints new USUAL tokens and distributes them as rewards to users.

The staking period for USD0++ is 4 years; users can cancel staking early at any time or sell USD0++ at the current price in the secondary market. Early canceling stakers will need to destroy their accumulated USUAL earnings. A portion of the destroyed USUAL will be distributed to USUALx holders.

USD0++ has two parts of income: 1. USUAL token incentives; USD0++ holders can receive daily USUAL token earnings; 2. Basic interest protection, USD0++ holders can earn at least returns equivalent to the yield of USD0 collateral (risk-free income). However, users must lock their USD0++ for a specified period. At the end of this period, users can choose to receive rewards in the form of USUAL tokens or the risk-free returns of USD0.

USUAL

USUAL serves as the main reward mechanism, incentive structure, and governance tool. The core philosophy behind its design is that USUAL tokens are essentially minted as proof of earnings, directly linked to the income of the protocol treasury. USUAL is distributed daily to different categories of participants.

USUALx

USUALx is the staking form of USUAL; holding USUALx can activate governance rights and earn 10% of the total newly issued USUAL, thereby promoting USUAL holders' long-term participation in the Usual ecosystem. Users can unstake USUALx at any time, but must pay a 10% fee on the unstaked amount.

USUAL*

USUAL* is the founding token of the Usual protocol, allocated to investors, contributors, and advisors, aimed at funding the creation of the protocol, and granted specific rights different from USUAL tokens, but it has no liquidity.

Holders of USUAL* have two permanent rights: 1. USUAL token allocation rights: USUAL* holders are entitled to receive 10% of all minted USUAL tokens, with the remaining 90% allocated to the community. 2. Fee distribution rights: USUAL* holders will also receive one-third of all fees generated from USUALx staking exits.

In the early stages of the protocol, USUAL* holders were granted majority voting rights to ensure adherence to the roadmap and promote effective decision-making during the launch phase. Over time, governance will transition to a decentralized model centered around USUALx. However, this transition will not affect the permanent economic rights of USUAL* holders.

As mentioned above, USD0++, USUALx, and USUAL* are closely related to the issuance and distribution of USUAL.

Through the distribution of USUAL, it incentivizes users to exchange USDC for USD0 and stake it into USD0++, encourages users to stake the obtained USUAL tokens into USUALx, and long-term binds the interests of Usual's team, VCs, and community by granting 10% USUAL incentives of USUAL*.

Sophisticated USUAL token issuance and distribution mechanism

The issuance of USUAL tokens adopts a strategy different from other crypto projects, mainly in its token issuance and distribution mechanism.

First, let's talk about token issuance. The maximum supply is 4 billion USUAL over 4 years. USUAL adopts a dynamic supply adjustment and emission mechanism, where the emission rate will be adjusted based on the growth of TVL priced in USD0++ and the interest rate of supporting USD0 assets, with an upper limit set to prevent excessive issuance. As the supply of USD0++ increases, the minting rate will decrease, helping to create scarcity and reward early participants.

Usual's issuance model is designed to be deflationary, with USUAL's inflation rate lower than Bitcoin's. The inflation rate is calibrated to remain below the growth of protocol income, ensuring that the token issuance speed does not exceed the economic expansion speed of the protocol.

Next, let's talk about the distribution situation. The following figure shows the distribution of USUAL:

As mentioned in the previous section, USUAL* is a special token model designed by the team and VC, allowing insiders like the team, VC, and advisors to obtain 10% of USUAL issuance over four years, synchronized with the entire community, with the first year being locked. The remaining 90% is fully allocated to the Usual community.

The result of such a design is that USUAL avoids becoming a widely criticized low-liquidity, high-FDV VC token, ensuring the alignment of interests between the team, VCs, and the community.

At the same time, the issuance of USUAL tokens is linked to protocol income, and its supply increases as protocol income grows. Therefore, unlike other DeFi projects where VCs and early adopters quickly sell tokens, Usual's token model incentivizes long-term holders.

Where does Usual's ultra-high yield come from?

One major reason for USUAL's recent rapid development is its ultra-high yield.

On December 20, 2024, the APY of USD0++ reached 94%, while the APY of the governance token USUAL's staking token USUALx reached 2200%, with corresponding APRs of 66% and 315%. On December 19, 2024, the APY of USUALx was as high as 22000%, with a corresponding annualized return rate (APR) of 544%.

Where does this high yield come from?

Currently, Usual's first collateral comes from Hashnote's USYC. USYC is the on-chain representation of Hashnote International Short Duration Yield Fund (SDYF), which primarily invests in reverse repos and short-term US Treasury bonds. According to the Hashnote website, over the past five months, the total yield of USYC has been only 6.87%.

Clearly, the underlying asset's yield is insufficient to support the ultra-high yields of USD0++, USUALx, and related LP on Curve and LST on Pendle; their high yields primarily come from the incentives of the USUAL token.

Conclusion: The Usual Flywheel

Stablecoins, as killer applications in crypto, have broader market prospects with clearer US regulations following Trump's administration, and the stablecoin market may reach trillions of dollars by 2025.

According to Usual's plans, in the future, Usual will also achieve diversification of USD0 assets, with future collateral coming from other US Treasury RWA projects such as BlackRock and Ondo. With the relaxation of US regulations, on-chain US Treasury bonds are expected to develop on a large scale by 2025. According to data from the US Treasury Department, the scale of short-term US Treasury bonds exceeds $2 trillion. By 2025, Usual's RWA collateral market may rival that of Tether.

As analyzed above, Usual targets real problems (on-chain Tether, short-term US Treasury bonds) and creates a Usual flywheel through sophisticated token economics design (USD0, USD0++, USUAL, USUALx, and USUAL*).

The expectation for the Usual stablecoin market -> USUAL price increase -> high yields -> large minting of USD0 and staking of USUAL -> protocol income increases, USUAL locked and minting decreases -> USUAL becomes scarce -> USUAL price rises -> high yield -> large minting of USD0 and staking of USUAL -> Usual's stablecoin market share increases.

The Usual flywheel has already started moving. Since USUAL was listed on Binance, the market cap of its stablecoin USD0 has increased by nearly $1 billion in less than a month, currently reaching $1.38 billion.