Author: Frank, PANews
The stablecoin sector is bustling, according to incomplete statistics from PANews, there have been 30 stablecoin projects officially announcing financing just in the second half of this year. Usual, as a decentralized stablecoin project backed by U.S. Treasury bonds, also announced A-round financing of $10 million led by two major exchanges, Binance Labs and Kraken Ventures, on December 23. In a market landscape already occupied by established giants like DAI and USDe, is there still room for newcomers in the stablecoin space? Does the rising TVL indicate it will become another hit stablecoin? This article from PANews will explore Usual's core potential and risks from the perspectives of its underlying operational logic and yield distribution design.
Short-term government bonds as collateral, with all profits shared with the community.
From an operational logic perspective, Usual is no longer operated by a centralized entity but is governed by the community on-chain. Additionally, in terms of profit distribution, Usual allocates 100% of the generated profits to the protocol treasury to feedback the community, while 90% of tokens are distributed to the community and 10% to the team and investors.
The core issuance mechanism of stablecoins is the collateral mechanism, especially for fiat stablecoins, where the collateral assets are the key factors ensuring asset safety and the stability of the stablecoin. The stablecoin product currently issued by Usual is USD0, which is unique in that it does not use traditional collateral such as cash or gold, but instead chooses ultra-short-term U.S. Treasury bills (T-Bills) with a maturity of only a few weeks to a few months, which have extremely high liquidity and stability as collateral assets, because they are backed by national credit and regarded as a 'risk-free return' category, thereby reducing reliance on commercial banks. Ultra-short-term government bonds have advantages in credit and liquidity, which is also why Usual claims to be an RWA stablecoin issuer.
However, there is a key point here: if one directly purchases ultra-short-term government bonds or other low-risk products, it can indeed achieve lower risk. But PANews learned from Usual's official documents that Usual itself does not directly purchase U.S. Treasury bonds; rather, it invests the collateral funds into a pre-packaged government bond/reverse repo product (USYC) through cooperation with Hashnote.
That is to say, Usual does not personally buy government bonds or operate reverse repos, but hands over the collateral assets to the due diligence partner Hashnote for management. Although Hashnote is also a regulated partner, with registered entities in the Cayman Islands and the United States, the types of assets cooperated on by both parties belong to almost risk-free ultra-short-term government bonds. However, under this model, there may not be an absolute lower risk compared to collaborations with commercial banks like Tether. Nevertheless, Usual's goal is to allow the community to vote together to decide the future collateral asset providers, not necessarily to always use Hashnote. Recently, Usual announced cooperation with Ethena and BlackRock's tokenization platform Securitize, using BUIDL and USDtb as collateral. Subsequently, the collateral assets for USD0 will no longer be limited to USYC.
'USD0++' creates a new way of LST with lock-up + circulating notes + exit game.
To encourage users to mint and use USD0, Usual has launched USD0++ for incentives and designed a competitive mechanism. USD0++ is a staking version of USD0, where users can earn rewards by staking USD0 and the official governance token USUAL. As of December 25, the annualized return on USD0++ exceeded 64%, previously even exceeding 80%. This high yield has attracted a large amount of funds to participate in the minting of USD0.
However, the design of USD0++ differs from other LSTs; the unified maturity date is June 30, 2028, with a four-year lock-up period. During this time, users can continuously earn USUAL token rewards, but this does not mean that users must keep their funds locked for the entire four years. USD0++ itself is a transferable token that can be traded on the secondary market, allowing holders to 'liquidate' or transfer even before maturity.
In addition, Usual has designed three exit mechanisms: USUAL Burning Redemption; Price Floor Redemption; Parity Arbitrage Right;
Notably, there is the USUAL Burning Redemption; when users want to redeem by burning, they need to return a portion of the USUAL rewards to redeem (the returned amount is dynamically adjusted).
In addition, the Usual white paper also mentions that the USD0++ model can be replicated for other assets (such as ETH0++, dUSD0++, etc.), which means that this unique LST mechanism is not limited to fiat stablecoins and can also be extended to other collateral or cross-chain ecosystems.
Overall, the design of USD0++ aims to encourage users to hold long-term, accumulate USUAL tokens during the lock-up period, and share growth dividends with the protocol, while the unified maturity date reduces users' short-term speculation tendencies. At the same time, USD0++ is a transferable 'note', retaining a certain level of liquidity. Finally, an exit game is adopted; if one exits early, they must burn USUAL or repurchase through an arbitration mechanism, creating an 'exit cost' to protect the protocol from bank run shocks and safeguard the rights of those who stay.
USUAL dynamic minting mechanism, with high early incentives
In addition to adopting decentralized operations and introducing RWA assets as collateral, Usual's governance token USUAL has a distinctive token economic model. Unlike other fixed issuance or one-time issuance methods, USUAL adopts a dynamic minting model for token issuance.
The USUAL token is not minted all at once but is dynamically minted daily based on a series of formulas and parameters and distributed to different 'savings, liquidity, and rewards' pools.
This dynamic formula consists of multiple factors: d: global distribution rate (0.25), equivalent to the reciprocal of the target issuance period of 4 years. Supplyt++: the current total supply of USD0++ (locked scale). Pt: the main market price of USD0++ (taken as 1 when pegged to 1 USD). Mt: dynamic minting rate, jointly determined by several factors (supply, interest rates, growth, etc.).
Each factor is calculated based on several other formulas, and the specific calculation process will not be elaborated here. Overall, the characteristics of this issuance mechanism are as follows: 1. Gradually 'reduce production' as the scale of USD0++ increases. 2. Adjust according to market interest rate fluctuations; when the FED or market interest rates rise and the actual yield obtainable by the project is higher, the system will moderately increase the token issuance volume to provide participants with more USUAL rewards; conversely, it will reduce production. 3. DAO can intervene manually; extreme market conditions or inflation pressures can be 'manually corrected' to ensure the long-term stability of the protocol. 4. Early incentives and later scarcity; in the initial stage, the supply of USD0++ is relatively low, and if the market interest rate or reward mechanism is set high, there will be a phenomenon of 'high early minting rate', attracting early participants. As time progresses, with dynamic changes in TVL and interest rates, the minting rate will stabilize or decrease, forming a process similar to 'halving' or 'reduction'.
In summary, the USUAL issuance mechanism attempts to find a self-regulating balance between 'expansion of stablecoin scale, real yield increase' and 'value appreciation for token holders', thereby incentivizing early users while ensuring later scarcity and fairness. This issuance model bears similarities to the former Terra, except Usual has placed this design only on the governance token and did not adopt this model for the issuance of stablecoins.
TVL tripled in a month, ranking in the top five in the industry.
Currently, there are several projects in the decentralized stablecoin space. What opportunities still exist for Usual in this sector? PANews has conducted a data comparison on currently mainstream decentralized stablecoins.
In terms of issuance volume, the largest decentralized stablecoin currently is Ethena USDe at $5.91 billion, followed by USDS and DAI. However, these projects have been operating for a long time. In terms of development speed, USD0's TVL has already reached $1.56 billion (as of December 25). On December 1, Usual's TVL was only $490 million, and in less than a month, it has tripled. Currently, the market value of USD0 ranks in the top five decentralized stablecoins.
This rapid growth may benefit from the high-yield flywheel model, with Usual's annualized yield at 64%, the highest among several stablecoin yield comparisons. If this yield can be maintained, it is very likely to grow into the next decentralized stablecoin giant.
Moreover, Usual's biggest advantage may also stem from the minimal risk of the collateral assets. Other decentralized stablecoins generally use fiat stablecoins and mainstream crypto assets as collateral, whereas the U.S. ultra-short-term government bonds used by Usual have a significantly lower risk coefficient.
On Usual's homepage, 'Getting Bigger than BlackRock' is displayed as the vision at the top, which also reflects Usual's ambition. Compared to industry leader Tether, Usual and other decentralized stablecoins still have a long way to go. The circulation of USUAL tokens is 473 million, with a market value of approximately $676 million. At the current revenue level, the average profit distribution per token is about $0.125. In terms of the design of the token economic model, this bears resemblance to the recently popular Hyperliquid. Both have inherent profitability and claim to return the vast majority of their income to the community in the form of tokens.
Recently, Usual has frequently been in the spotlight with Binance, from listing and airdrops to Binance Labs announcing on December 23 that it led Usual's $10 million A-round financing. This buzz inevitably reminds people of Binance Labs' early investment and support for Terraform Labs, although that investment ultimately became a failed case. Will today's Usual become another rising star for Binance Labs in the stablecoin space?
