Looking back at our story of getting to know and investing in Usual.
First acquaintance with the Usual team.
In June 2023, amidst a downturn in the cryptocurrency market, Bitcoin struggled to maintain around $25,000, and many investment institutions chose to refrain from action or remain on the sidelines during the bear market, just as we encountered Usual's founders Pierre and Adli. A shocking USDC depegging incident occurred at that time, showing that even the safest stablecoins have risks and vulnerabilities, while contrary to this, USDT reported record profits and is expected to surpass BlackRock this year. This paradox in the stablecoin market reflects both serious vulnerabilities and tremendous potential.
In July, our investment team specifically went to Usual's office in Paris, where they had formed an 8-person team with their own funding and booked a modest meeting room in a shared office in Paris to pitch and talk with us. We communicated for about 2 hours and arranged a second meeting regarding technology with Usual's CTO that week. Pierre, the founder, has an interesting background; he was a former French Member of Parliament and an advisor to French President Macron.
Gain a deep understanding of Usual's product design.
When Pierre outlined their vision to us, we were initially shocked by its depth and detail. Their strong passion and meticulous thinking were evident, which also meant we had to invest more time to understand them and assess the investment's feasibility.
During the due diligence process, we held multiple internal and external meetings and detailed written communications, ultimately accumulating 50-70 pages of material. As we delved deeper, we became increasingly impressed by how they meticulously integrated each detail into a grander vision. Their responses to our questions were never vague, but consistently based on thorough research, demonstrating a deep understanding of future challenges.
But what truly sets them apart is not just their technical prowess or attention to detail, but their genuine passion and belief. Clearly, they live for Usual 24/7 (which is very different from the typical impression of the French); their enthusiasm is infectious, making us believe in their vision to disrupt Tether. We clearly see that these individuals are not chasing a market cycle, but are fundamentally changing the landscape of stablecoins.
Difficult yet resolute investment decisions.
We decided to make one of IOSG's largest seed round investments ever. However, even after we committed to lead the investment in August, it took nearly two months to complete the entire round of financing. In fact, IOSG invests in fewer than 15 deals each year, of which about 5 projects we lead. The leading process is quite challenging, as exemplified in the Usual case. After confirming our lead investment, we created a complete list of Eastern and Western investors for this project, but at that time, these investors did not give any commitments within a month; everyone wanted to continue observing, unsure if this financing could succeed. During the hardest times, our colleague Momir even personally went to a certain investor's IC to help explain the entire stablecoin and DeFi mechanism design of Usual, answering the IC's questions. In the end, fortunately, this institution came on board. This deal made us feel unprecedented non-consensus; when 20 mainstream investment funds in the industry said no, we still persisted and continued to support the team in completing that round of financing, which also benefited from the founders' resilience and persistence.
Ironically, even the fund that introduced us to Usual ultimately gave up on this round of investment. At one point, an early local French fund pointed out that outsiders did not recognize Pierre's outstanding background, but they themselves also gave up on this round of investment. Looking back at Usual’s financing history, it is regrettable that among the many VC funds they approached, only 3-5 funds truly delved into the project details.
In the three months following the completion of financing, we watched as Pierre and Adli continuously refined their vision and advanced development progress. The resilience displayed during this period further strengthened our belief. Ultimately, we were fortunate to complete this round of financing with like-minded funds such as Kraken Ventures, who also invested significant time to understand the details of the Usual concept.
Like-minded, moving forward together.
After investing, the team's execution speed even surprised us. Their attention to detail during the preparation phase translated into outstanding execution in practice. They achieved milestone speeds that exceeded our most optimistic expectations. Later, IOSG's post-investment team joined in and internally organized a list of well-known KOLs from the East and West, selecting some with different backgrounds and strengths after multiple discussions and screenings to help the Usual team. They then introduced and recommended each one individually. Additionally, through multiple pitches to one of Asia's largest TVL communities, we helped Usual successfully enter this largest DeFi community in Asia, securing the first $200 million in TVL during the grayscale testing phase.
Looking back on this journey, it should encourage future founders. It doesn't matter how many "No" you receive; you only need one "Yes" to trigger an avalanche effect. Today, we are more convinced than ever that our willingness to support Usual will be one of our most important decisions. Sometimes, that’s all it takes—saying a "Yes" at the right moment, to the right team, with the right vision.
The difficult journey makes these important milestones even more rewarding. We are excited to see Usual starting to receive the recognition it deserves, while also being soberly aware that this is just the beginning of a long journey. There is still a lot of work ahead. We firmly believe that Usual has the potential to set a new gold standard for stablecoins. With a focused team, revolutionary on-chain infrastructure, and innovative token economics, Usual is ready to challenge Tether. If successful, this "vampire attack" could bring about the most significant wealth generation effect of this bull market.
Thanks again to all the team members at IOSG who supported the investment decision in Usual during the bear market trough. Usual’s growth has allowed the team to experience the power of growing alongside the founders, with each member becoming an ambassador for Usual. As a evergreen fund in the crypto industry, we are keenly aware of the challenges of investing, but we are willing to help entrepreneurs in the crypto industry reach for the stars and achieve success! We also look forward to the next entrepreneur who comes to us becoming the new Usual!
You’re unUSUAL!
Next, let's review some memos and thoughts written by our investment colleagues in 2023.
Let’s start with a background story and a simple question: Why is BlackRock suddenly so interested in blockchain technology? Is BlackRock embracing the idea of cryptocurrency? Perhaps not. Do they see long-term advantages in replacing traditional financial infrastructure with blockchain technology? To some extent, yes.
But the real driving force may be the considerable business opportunities currently in the blockchain space.
This leads us to the story of Tether (the legendary company behind USDT).
Tether: The best business model ever.
Last year, Tether made headlines for its first-quarter net income exceeding that of BlackRock, despite BlackRock managing over 120 times the assets. How is this possible?
- Excerpt from the illustration in IOSG 2023 Usual Investment Memo.
Tether's core business is accepting fiat collateral in off-chain bank accounts and issuing digital representations of these fiat currencies, namely USDT. This model is considered one of the most competitive business models in the financial industry for the following reasons:
100% collateralized investment flexibility: Tether can freely manage the fiat currency it receives.
Retain 100% of investment profits: All profits remain within the company.
Huge operational leverage and profit margins: Operational costs are independent of scale and remain constant.
By investing fiat currency in income-generating assets like government bonds, Tether generates billions of dollars in annualized revenue from its $140 billion in managed assets. Unlike banks, they do not need to share these profits with users, as users primarily focus on the stablecoin itself and its utility as a widely accepted medium of exchange.
Another key point is that such businesses have substantial operational leverage. Whether Tether manages $10 billion, $100 billion, or $1 trillion, its operational expenses remain relatively constant. This scalability provides Tether with tremendous growth opportunities.
Scaling to trillions: The demand for risk-free stablecoins.
Despite their success, existing stablecoin providers like Tether and Circle still face several key issues that need to be addressed. For example, the collapse of Silicon Valley Bank (SVB) exposed some potential risks, indicating that stablecoins are not without risk. Moreover, if any risks materialize, users will be the first victims.
Lack of transparency.
During the Silicon Valley Bank crisis, the public was unaware of whether any stablecoin providers were affected. This highlighted significant transparency issues. The lack of transparency not only undermined user trust but also posed regulatory risks due to information asymmetry, which could ultimately lead to stablecoins being reclassified as securities.
Vulnerable to runs.
Despite holding only a small amount of assets at SVB, Circle still faced the risk of a death spiral, indicating flaws in its risk management. Due to a single account holding large deposits, Circle's deposits were uninsured. Without intervention from the U.S. government, Circle could face a catastrophic run, as it intends to maintain a 1:1 redemption even if the value of collateral has depreciated.
Principled variability.
Existing stablecoins like Tether and Circle are not designed to meet the future trillion-dollar demand. They rely on human judgment, lack predictability and immutable principles, and are vulnerable to black swan risks that could have catastrophic consequences for the broader crypto industry. The stablecoins we should have must possess immutability and be based on established rules for permanent service.
Excessive risk-taking.
Although Circle is the only stablecoin provider that was clearly affected by SVB's collapse, this does not mean that Tether's management is more cautious; it has simply been luckier so far. Some even argue that given Tether's scale, the aforementioned risks are more pronounced in Tether, which is concerning. Tether has recently begun addressing some of these issues to mitigate certain black swan risks. However, a review of its balance sheet shows that they have a high degree of flexibility in managing off-chain funds, with billions invested in illiquid positions like secured loans and "other investments." So, are USDT holders adequately compensated for the risks associated with these lending and investment activities?
Introducing Usual: A user-owned, systematically risk-free stablecoin.
Formulating an investment strategy to absorb billions during a bull market is one thing; building a stablecoin that can scale to trillions is another. Usual is tackling the latter challenge.
In recent years, it has become clear that stablecoins will gradually replace volatile cryptocurrencies as the primary medium of payment on the blockchain. Even just to meet the existing demand of approximately $200 billion for stablecoins, the necessity for external assets as collateral is increasingly evident. For this reason, the infrastructure that Usual is building possesses the following characteristics:
Operate predictably according to immutable principles: Usual’s design ensures the stability and reliability of its operations, reducing user uncertainty.
Maximize transparency: By enhancing transparency, Usual builds user trust and ensures stakeholders clearly understand the flow of funds and asset collateral.
Minimize run risks and mitigate black swan events: Usual’s mechanisms are carefully designed to avoid run risks and effectively respond to emergencies.
Considering the critical infrastructure role of stablecoins in the financial system, their design should adopt a pessimistic view. Usual’s on-chain infrastructure is carefully designed to scale seamlessly, effectively aggregate high-quality collateral, and avoid runs.
However, risk-averse and conservative designs often struggle to guide and achieve scale growth. Most newly RWA-backed stablecoins lack appeal to early adopters, who are less likely to be attracted by a modest 5% annual yield offered by rebase stablecoins. Without the motivation provided by early adopters, these projects are unlikely to reach the scale necessary to attract institutional interest, making their prospects dim.
Risk-averse stablecoin x Radical governance token design.
In contrast, Usual Money adopts an innovative approach by separating its main token—a risk-averse stablecoin—from the returns fully allocated to governance tokens. This model not only encourages users to participate due to speculative and wealth creation opportunities but also cultivates strong network effects over time to ensure long-term user retention. The distribution mechanism for governance tokens is designed to heavily reward early participants. As Usual scales up and builds network effects over time, the mining of additional governance tokens will cease, effectively capping the supply of governance tokens.
Consider the scale of the opportunity: If Tether were to go public today, its valuation could exceed $50 billion (conservatively estimated), based on approximately $140 billion in productive managed assets and a conservative price-to-earnings ratio. If Tether chose to return this value to the community, it could bring at least a 50% one-time return to all users.
At the same time, Usual Money is not simply separating stablecoin products from governance tokens that will be allocated according to a logarithmic function. For those willing to make extra commitments and maximize returns, Usual plans to introduce a token economic model that includes complex game theory, which is the most innovative design since the advent of veCRV.
An excellent team and vision.
About the team: The product is highly aligned with the founders. The team is vibrant and professional, leaving a strong and unique impression during calls: they are charismatic, sharp-thinking, business-oriented, and adept at showcasing their vision. The co-founders complement each other well and possess excellent networking capabilities in both cryptocurrency and traditional finance.
- Excerpt from IOSG 2023 Usual Investment Memo.
After engaging with hundreds of teams in the crypto space over the past four years, we can say that Usual is among the top tier. The Usual team is unparalleled in energy, dedication to the project, urgency from day one, and the desire to prove themselves and execute a grand vision. They possess the right combination of legal and financial expertise needed to build a risk-averse stablecoin design while having enough crypto native understanding to guide the community and complete the first phase of product scaling.
Usual has the potential to set a new gold standard for stablecoins. With a focused team, revolutionary on-chain infrastructure, and innovative token economics, Usual is ready to challenge Tether. If successful, this "vampire attack" could bring about the most significant wealth generation effect of this bull market.
