With this important milestone reached, we hope that everyone will pay attention to this unique opportunity and understand why we believe Usual Money may be one of the most promising wealth creation projects in this cycle. This article will review the story of how we realized the investment in Usual and some of the thoughts before deciding to lead the investment. Thank you to the IOSG investment team for playing a key role in the investment decision of Usual, and the post-investment team for their support and help in the growth of Usual. Thanks to Jocy, Momir for providing the original material and Shirley for editing the content.
Looking back on our story from meeting to investing in Usual
First meeting with the Usual team
In June 2023, when the cryptocurrency market was in a slump, Bitcoin struggled to maintain around 25,000. Many investment institutions chose not to act or wait and see in the bear market. We happened to meet Pierre and Adli, the founders of Usual. At that time, the shocking USDC decoupling incident occurred. The safest stablecoin also had risks and vulnerabilities. Contrary to this, USDT was reporting record profits and was even expected to surpass BlackRock this year. This contradictory phenomenon in the stablecoin market shows both serious fragility and huge potential.
In July, our investment team went to Usual’s office in Paris. They had formed a team of 8 people with their own funds at the time and booked a simple meeting room in a shared office in Paris to pitch and talk with us. We talked for about 2 hours, and arranged a second meeting with Usual’s CTO about technology that week. Pierre, the founder, has an interesting background. He is a former French parliamentarian and an advisor to French President Macron.
Learn more about Usual’s product design
When Pierre presented their vision to us, we were initially struck by the depth and detail. Their passion and thoughtfulness were evident, which meant we had to invest more time to understand them and evaluate the potential for investment.
The due diligence process involved multiple meetings and detailed written communications both internally and externally, ultimately accumulating 50-70 pages of material. The deeper we delved, the more impressed we became with how they carefully integrated every detail into the larger vision. Their responses to our questions were never vague but always well-researched and demonstrated a deep understanding of the challenges ahead.
But what really makes them special isn’t just their technical prowess or attention to detail - it’s their genuine passion and belief. They clearly live for Usual 24/7 (which is very different from the French impression); their enthusiasm is contagious and makes us believe in their vision to disrupt Tether. It’s clear to us that these people are not chasing a market cycle, but are out to fundamentally change the stablecoin landscape.
Difficult but firm investment decisions
We decided to make one of the largest seed round investments in IOSG’s history. However, even after we committed to lead the investment in August, it still took nearly two months to complete the entire round of financing. In fact, IOSG only invests in less than 15 deals each year, of which we will lead about 5 projects. The process of leading investment is actually very challenging, which is vividly reflected in the case of Usual. After we confirmed the lead investment, we listed a complete list of Eastern and Western investors for this project, but at that time these investors did not give any commitment within a month. Everyone wanted to continue to wait and see, unsure whether this financing could be successful. In the most difficult time, our colleague Momir even went to an investor’s IC in person to help the investment institution explain Usual’s entire stablecoin and DeFi mechanism design, and answer IC’s questions. Fortunately, this institution came in. This deal made us feel an unprecedented lack of consensus. When 20 mainstream investment funds in the industry said no, we still went our own way and continued to support the team to complete that round of financing. Of course, this is also due to the founder’s tenacity and persistence.
Ironically, even the fund that introduced Usual to us eventually gave up on this round of investment. At one point, a local French early-stage fund pointed out that foreigners did not recognize Pierre’s outstanding background, but they themselves gave up on this round of investment. Looking back on Usual’s financing history, it is regrettable that among the many VC funds they contacted, only 3-5 funds really delved into the details of the project.
In the three months since closing the round, we’ve watched Pierre and Adli refine their vision and advance development. The resilience shown during this period has only strengthened our belief. Ultimately, we were fortunate to close the round with like-minded funds like Kraken Ventures, who also invested a lot of time to understand the details of Usual’s concept.
Like-minded, working hand in hand
After the investment, we were even surprised by the team’s execution speed. Their attention to detail in the preparation stage translated into excellent execution in practice. They achieved milestones faster than our most optimistic expectations. Later, the IOSG post-investment team joined in and compiled an internal list of well-known KOLs from the East and the West. After many discussions and screenings, they helped the Usual team select some KOLs with different backgrounds and advantages, and then helped them to introduce and recommend them one by one. In addition, through multiple pitches with Asia’s largest TVL community, we helped Usual successfully enter Asia’s largest DeFi community, allowing their product to successfully capture the first 200m TVL during the grayscale testing phase.
Looking back on this journey should be encouraging to future founders. It doesn’t matter how many “nos” you receive; you only need one “yes” to trigger an avalanche effect. Today, we are more certain than ever that our “yes” to Usual will be one of our most important decisions. Sometimes, that’s all it takes – a “yes” at the right moment, to the right team, with the right vision.
The difficult journey makes these important milestones all the more gratifying. We're excited to see Usual starting to get the recognition it deserves, but also aware that this is just the beginning of a long journey. There is a lot of work ahead. We firmly believe that Usual has the potential to set a new gold standard for stablecoins. With a dedicated team, revolutionary on-chain infrastructure, and innovative token economics, Usual is ready to challenge Tether. If successful, this "vampire attack" may bring about the most significant wealth-generating effect of this bull market.
Thanks again to all the IOSG team members who supported the decision to invest in Usual at the bottom of the bear market. The growth of Usual has made the team feel the power of growing with the founder, and every member has become an ambassador for Usual. As a long-term fund in the crypto industry, we are well aware of the difficulties of the investment business, but we are willing to help entrepreneurs in the crypto industry all the way to the stars and success! We also look forward to the next entrepreneur who comes to us to become the new Usual!
You’re unUSUAL!
Next, let’s review some of the memos and thoughts written by our investment colleagues in 2023
Let’s start with a backstory and a simple question: Why is BlackRock suddenly so interested in blockchain technology? Is BlackRock embracing the idea of cryptocurrency? Probably not. Do they see long-term advantages in replacing traditional financial infrastructure with blockchain technology? To some extent, yes.
But the real core driving force may be the considerable business opportunities in the current blockchain field.
This brings us to the story of Tether, the legendary company behind USDT.
Tether: The best business model ever
Last year, Tether made headlines when its first-quarter net income surpassed BlackRock’s, despite BlackRock having more than 120 times more assets under management. How is this possible?
Illustration from IOSG’s 2023 Usual investment memo
Tether's core business is to accept fiat collateral in off-chain bank accounts and issue digital representations of these fiat currencies, namely USDT. This model is considered the most competitive business model in the financial industry for the following reasons:
100% collateral investment flexibility: Tether can freely manage the fiat currency it receives.
Retain 100% of investment income: All profits remain within the company.
Huge operating leverage and margins: Operating costs remain constant regardless of scale.
By investing fiat currencies in interest-bearing assets such as treasuries, Tether generates billions of dollars in annualized revenue from its $140 billion in assets under management. Unlike banks, they do not need to share these earnings with users, who are primarily concerned with the stablecoin itself and its utility as a widely accepted medium of payment.
Another key point is that this type of business has tremendous operating leverage. Whether Tether manages $10 billion, $100 billion, or $1 trillion, its operating expenses remain relatively constant. This scalability provides Tether with tremendous growth opportunities.
Scaling to trillions: The need 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, showing that stablecoins are not risk-free. Moreover, if any risks become a reality, users will be the first to bear the brunt of the victims.
Lack of transparency
During the Silicon Valley Bank crisis, the public did not know if any stablecoin providers were affected. This highlights a significant transparency issue. Lack of transparency not only erodes user trust, but also may bring regulatory risks due to information asymmetry, which may eventually lead to stablecoins being reclassified as securities.
Vulnerable to bank runs
The fact that Circle is at risk of a death spiral despite holding only a small amount of assets in SVB shows flaws in its risk management. Circle’s deposits are not insured due to large deposits held in a single account. Without U.S. government intervention, Circle could face a catastrophic run because it intends to maintain 1:1 redemptions even though the value of its collateral has depreciated.
Variability in principle
Existing stablecoins, such as Tether and Circle, are not designed to meet the trillion-dollar needs of the future. They rely on human judgment, lack predictability and immutability, and are vulnerable to black swan risks on a scale that could have catastrophic consequences for the broader crypto industry. The stablecoins we should have should be immutable and built on clear, established rules that serve forever.
Excessive risk taking
While Circle is the only stablecoin provider to be significantly impacted by the collapse of SVB, this does not mean that Tether has been more prudently managed; it has simply been more fortunate so far. Some even argue that the aforementioned risks are more prominent in Tether, which is concerning given its size. Tether has also recently begun to address some of these issues to mitigate some of the black swan risks. However, reviewing its balance sheet shows that they have a high degree of flexibility in managing off-chain funds, with billions of their dollars being invested in illiquid positions such as 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, systemically risk-free stablecoin
It’s one thing to build an investment strategy that absorbs billions of dollars in a bull market; it’s another to build a stablecoin that can scale to trillions. Usual is tackling the latter challenge.
In recent years, it has become clear that stablecoins will gradually replace volatile cryptocurrencies as the main payment medium on the blockchain. Even if only to meet the existing stablecoin demand of about $200 billion, the necessity of exogenous assets as collateral has become increasingly obvious. To this end, the infrastructure that Usual is building has the following characteristics:
Operates predictably based on immutable principles: Usual is designed to ensure stability and reliability in its operation, reducing user uncertainty.
Maximizing transparency: By increasing transparency, Usual enhances user trust and ensures that relevant parties have a clear understanding of fund flows and asset collateralization.
Minimize bank run risks and mitigate black swan events: Usual’s mechanisms are carefully designed to avoid bank run risks and effectively respond to unexpected events.
Considering the critical infrastructure role of stablecoins in the financial system, their design should be pessimistic. Usual’s on-chain infrastructure is carefully designed to scale seamlessly, efficiently aggregate high-quality collateral and avoid runs.
However, risk-averse and conservative designs often make it difficult to bootstrap and achieve scale. Most new RWA-backed stablecoins lack the appeal to early adopters, who are unlikely to be attracted to rebase stablecoins that offer a modest 5% annual yield. Without the motivation provided by early adopters, these projects are unlikely to reach the scale needed to attract institutional interest, and the prospects therefore appear bleak.
Risk-averse stablecoin x radical governance token design
In contrast, Usual Money takes an innovative approach by separating its primary token - a risk-averse stablecoin - from proceeds allocated entirely to governance tokens. This model not only encourages users to participate due to speculation and wealth creation opportunities, but also fosters strong network effects over time to ensure long-term user retention. The distribution mechanism for governance tokens is designed to strongly reward early participants. Over time, as Usual scales and builds network effects, mining of additional governance tokens will cease, effectively capping the supply of governance tokens.
Consider the size of the opportunity: If Tether went public today, its valuation could be over $50 billion (conservatively estimated), based on ~$140 billion in productive assets under management and a conservative P/E multiple. If Tether chose to return this value to the community, it could result in a one-time gain of at least 50% for all users.
At the same time, Usual Money is more than simply separating the stablecoin product from the governance token that will be distributed according to a logarithmic function. For those participants willing to make additional commitments and maximize their 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.
Great team and vision
About the team: The product is highly matched with the founders. The team is full of energy and professionalism, leaving a strong and unique impression on the call: they are charismatic, sharp-minded, business-oriented, and good at presenting their ideas. The co-founders complement each other and have excellent connections in both cryptocurrency and traditional finance. - Excerpt from IOSG 2023 Usual Investment Memo
Having been exposed to hundreds of teams in crypto over the past four years, we can say that Usual ranks among the top. The Usual team is unmatched in terms of energy, dedication to the project, sense of urgency from day one, and eagerness to prove themselves and execute on their big vision. They have the right combination of legal and financial expertise to build a risk-averse stablecoin design, while being crypto-native enough to know how to bootstrap the community and get through the first phase of product scaling.
Usual has the potential to set a new gold standard for stablecoins. With a dedicated team, revolutionary on-chain infrastructure, and innovative token economics, Usual is ready to challenge Tether. If successful, this "vampire attack" may bring about the most significant wealth-generating effect of this bull market.