Today we are going to talk about a super hot project - Usual, which has been rising sharply recently, almost 10 times. But I have also published a research article about Usual before, which actually mentioned its positive flywheel problem. The positive flywheel is also a reverse death spiral. There are always advantages and disadvantages. This has been reflected in many previous projects, including luna, gmx, etc. Before the luna wave, I actually raised such a question, but no one believed it. In the end, the facts proved it. I just reminded everyone, but some network trolls may not have enough quality and trolled everywhere. So today I will list the evidence in detail to prove to everyone what this thunder is.
Working principle
First, let's review the mechanism of Usual. The stablecoin of Usual is USD0, which, according to its claim, is minted by collateralizing RWA assets on-chain. Please note that it clearly states that this collateralization is 1:1!
Once USD0 is minted, it can be collateralized, turning into USD0++, while also earning the yield token Usual. As the number of USD0++ minted increases, the rewards of Usual will decrease.
Question 1: Exaggerated staking yields
First, let me show you a yield chart from the official website: USD0++ APY 100%, USUAL APY 2819%, USD0/USD0++ 106%, USD0/USDC APY 63%. I wonder how everyone feels seeing these yields; yields of such a level, falling from the sky, any normal person would think this is a scam. Asking the project team what kind of yield they need to achieve to cover this shocking APY, while the collateral is someone else's, and you claim it’s 1:1, how can you issue more stablecoins? You can only source funds from the Usual token, so this is a scheme of empty-handed leverage, and secondly, this works fine when Usual is rising, but in a downturn, it becomes chaotic.
Question 2: 1:1 collateral?
As mentioned above, it uses other people's RWA assets for 1:1 collateral to generate this stablecoin. Why do stablecoins like DAI require over-collateralization? Because other stablecoins have liquidation mechanisms; when your assets decline and become insolvent, others can liquidate your assets, hence the need for over-collateralization. But since you are 1:1, who provides the margin? Who guarantees that your RWA assets won't depreciate? Yesterday, a skeptic mentioned that if this RWA asset is government bonds, then government bonds cannot depreciate? I've checked the data, and the maximum depreciation of US Treasury bonds has exceeded 30% (2022-2023: During the rapid interest rate hike cycle of the Federal Reserve, long-term US bonds (20 years or more) ETF (like TLT) once fell close to 30%), and there are even more cases of 5%-10% depreciation. The issue with 1:1 collateralization is that I can arbitrage infinitely? What a ridiculous question; can't the project team think of this? Why still 1:1?
(Of course, they also mention some risk strategies, like three remedial measures, but if you look closely, what they said is essentially nothing.)
Question 3: Why 1:1?
Because they didn’t really use RWA as collateral; RWA is just their packaging. In fact, they also said they are initially using Hashnote's USYC. So let's take a closer look at Hashnote Company and this USYC.
Introduction to Hashnote Company
This is also a very new company, established in 2022, with its registered address in the Cayman Islands. Its main business is to provide decentralized financial investment solutions for institutions and high-net-worth clients, focusing particularly on stable yield products and digital asset management. Its main services include:
On-chain yield management: By investing in short-term US government bonds and similar assets, providing stable on-chain yields (e.g., USYC tokens).
DeFi optimization strategies: Utilize smart contracts and on-chain transparency to optimize yields in DeFi and reduce risks.
Compliance-driven solutions: All funds undergo KYC certification and utilize a whitelist mechanism to ensure safety and transparency.
The company's team is also public; the founder is named Bagayalu, with no background, just someone who previously worked at DRW. Then he told his boss, I want to start a business, and the DRW boss said, I’ll give you 5 million; go ahead. So he started in 2022. At least compared to Usual, their team is real-name verified.
To emphasize the mechanism of USYC, currently, there are only two ways to purchase USYC on Hashnote, which are through USDC and YPUSD, both of which are stablecoins. Currently, the value of USYC is roughly 3% higher than 1 USD, similar to the interest on US government bonds, with redemptions being analogous.
Currently, it can be seen that USYC manages a total of 1.2 billion USD, and then let's check how much Usual claims is its TVL, which perfectly matches 1.2 billion.
Well, their managed funds become your TVL; you really are something. Now let's think, would a wealth management company pledge all its funds to you Usual? What if Hashnote's clients want to redeem? Where would they get extra funds to pay out?
Therefore, there is only one explanation: there is no real collateral, it may just be a promise or agreement. Okay, if that’s the case, we can understand why they dare to collateralize 1:1 to mint stablecoins; first, USYC is already roughly 1 USD, and second, USYC has not undergone real collateralization.
Let's look at the on-chain data; on the Ethereum explorer, it shows that USD0 has indeed minted 1.268 billion, matching the value of USYC. It should be noted that the data retrieved from the browser shows that Hashnote has been trading since 2022, while Usual only released its demo in November 2023. How can you dare to use all of someone else's capital to mint stablecoins? This is a huge insider trading scandal!
And the warehouse address provided by the official website for USYC is actually the address of Hashnote. If you are genuinely minting, you should see in the contract the inflow of USYC and outflow of USD0. Unfortunately, I did not see this contract. The only USD0 contract only mentions the upgrade calls, permission management, and access control, with no mention of the conversion between USYC and USD0. Of course, it cannot mention it because it doesn't exist; how can it be mentioned?
Question 4: How to stabilize the price?
The official documentation has not described its stability mechanism (because Usual does not participate in the stabilization process, unlike Maker). There is only an official swap to exchange USD0 and USDC, which is very centralized and simply absurd.
Question 5: When will it explode?
Recently, USYC's TVL has indeed surged, especially during the months of November to December.
Why has there been a surge? And Usual went live during this period; everyone should think carefully about the correlation?
Since the two companies are in a cooperative relationship, it is easy to explain. I mint stablecoins out of thin air to exchange for USDC and then buy USYC. Isn't that a guaranteed profit model? This way, I achieve two goals: first, my TVL increases, allowing me to mint more Usual; second, I can make money, as 3% returns are still profits, after all, they are generated out of thin air. So this is a positive feedback loop where the project party already wins effortlessly.
But what about retail investors? You earned 3%, can that cover the hundreds of times of APY mentioned in question 1?
Finally, how the project might explode can be imagined by everyone. When its centralized stability center cannot exchange USD0 for USDC, everyone will realize they have been scammed, and with no effective liquidation mechanism, the decoupling of USD0 is destined!
In summary, this project has several significant security risks: 1. Exaggerated staking yields aim to prevent you from selling the token, holding it until you can't recover. 2. No liquidation mechanism, 1:1 collateralization. 3. Centralized price stabilization swap, which is bizarre, or rather, there is fundamentally no stabilization method. 4. False TVL, after all, it was self-issued. 5. The team is not real-name verified.
I originally thought this project would spiral negatively like Luna, but after careful study, I realized it doesn't even compare to Luna; it's a pure ZP project.
