Usual (USUAL): The new era of decentralised stablecoins?

What you need to know 🐳

Usual is a stablecoin project deployed on Ethereum that aims to replicate the way Tether works, but in a completely on-chain and decentralised way.

All collateral is on-chain and verifiable in a completely transparent way.

At the heart of this system is the USUAL token (due to launch at the end of 2024), which will allow users to govern the protocol.

This project probably represents the most decentralised approach in the stablecoin sector.

"Our aim is to decentralise the services offered by Tether and Circle," Pierre Person, co-founder of the project, tells The Big Whale. "These companies certainly met a market need at one point, but they are now tending to move closer to the traditional banking model."

Overview 🧬

Usual's first asset is the USD0 stablecoin, launched in July 2024.

100% backed by US Treasuries, USD0 has quickly risen to 14th position among the largest stablecoins in just two months (real-time ranking on DeFiLlama).

Although it does not offer a direct return to its users, USD0 helps generate revenue for the Usual protocol.

USD0 is positioned primarily as a trading tool, with future potential as a means of payment, subject to sufficient distribution.

The Usual ecosystem also includes USD0++, obtained by immobilising USD0 in the protocol (via staking).

It is this asset that enables us to benefit from the yields derived from Treasury bills.

It is important to note that this yield is not yet accessible: pending the launch of the USUAL governance token (expected by the end of 2024), protocol users are accumulating "pills" - points that will be convertible into USUAL tokens upon airdrop.

Funding 💰

In April 2024, the project raised $7 million in a strategic funding round.

This round attracted 24 investors, including venture capital funds such as IOSG Ventures, Kraken Ventures and GSR Ventures, as well as business angels.

According to our information, a new round of financing is currently being finalised.

Team and community 👾

Usual has been developed since 2022 by three French entrepreneurs: former MP Pierre Person (2017-2022), Adli Takkal Bataille and Hugo Sallé de Chou. This trio forms the core of Usual Labs, the start-up behind the protocol.

The Usual Labs team, some twenty strong, stands out for the diversity of its profiles. It brings together expertise in traditional finance, DeFi, Web 2, as well as regulatory and political fields.

Community involvement is at the heart of Usual's philosophy. This is demonstrated in particular by their initiative to redistribute profits to users and the generous allocation of 90% of the USUAL token to the community.

The Usual community, although new, is growing rapidly. It already has and 75,000 subscribers on X (ex-Twitter) and 18,000 members on its Discord.

Function ⛓️

👉 USD0

USD0 is a relatively simple stablecoin that can be obtained in two ways:

• By depositing real-world tokenised assets (RWAs) directly, an option mainly reserved for institutional players
• By depositing USDC stablecoins, which Usual then converts into RWAs

Currently, only US Treasury bills tokenised by the company Hashnote (USYC) serve as collateral for USD0. Pierre Person explains, "We chose Hashnote because it was one of the first on the market and offered the shortest maturity, in order to be as close as possible to the dollar."

According to our information, BlackRock's BUIDL fund and other European issuers are expected to join the system soon.

This approach provides 1:1 collateralisation, offering a safer and more robust alternative to traditional stablecoin models based on bank deposits, which rely on the creditworthiness of banks.

Users can request Usual to recover the underlying collateral securing each USD0 at any time. The maximum timeframe is 24 hours, which makes it possible to manage major liquidity events should many users wish to recover their funds simultaneously.

This operation is primarily intended for institutional players. Individuals are instead encouraged to exchange their USD0s for USDC on Paraswap and Curve, with no slippage fees.

👉 USD0++

The USD0++ is obtained by locking USD0s into the protocol for a fixed period of four years. This period can be reduced at a later date in exchange for the destruction of USUAL tokens.

Freely exchangeable on the secondary market, the USD0++ can be considered as a savings instrument. It allows its holders to benefit from the yield generated by tokenised Treasury bills.

Holders of USD0++ will be able to choose between two yield strategies, depending on their appetite for risk:

• Speculative strategy: Users can claim USUAL tokens with each block, potentially offering higher yields, but exposed to market volatility.
• Risk-free strategy: Users can opt for a stable USD0 return from the tokenised assets, guaranteeing a secure and predictable return.

Please note: initially, only rewards in USUAL tokens will be available. The choice between the two strategies will be available around January 2025.

The team says that the return in USUAL tokens aims to exceed the risk-free rate (see the section on the USUAL token below).

Ecosystem 🤝

Usual's ecosystem is built around strategic integrations with major DeFi platforms, including Pendle, Curve and Morpho. A dozen partners offer a variety of options, where USD0 and USD0++ play a central role in return strategies, going beyond their mere function as collateral.

In August 2024, Usual teamed up with Pendle for the "Pills Overdose" campaign, aimed at boosting engagement around USD0++. Users accumulate 'pills' - convertible into Usual at launch - by taking part in activities such as staking Yield Tokens (YT) or providing liquidity (LP).

On Curve, a USD0/USD0++ pool already boasts a TVL in excess of $64 million, with a transaction volume of $1.18 million. This pool not only allows users to earn "pills" and benefit from USD0++ returns, but also plays a key role in the liquidity of the ecosystem.

Morpho, meanwhile, offers lending options for USD0, USD0++ and USDC.

The USUAL token 🌕

The USUAL token is scheduled to launch by the end of 2024.

As a governance token, it will allow holders to participate in protocol decisions, such as burning tokens to rarefy supply, making investments, or choosing assets to be used as collateral.

"Issuers of tokenised money market funds will thus be incentivised to hold USUAL in order to weigh in on governance to be selected," explains Pierre Person. Potentially, BlackRock and other similar products could generate buying pressure on USUAL.

"I doubt that we will buy tokens for our products to be integrated," confides a European issuer. "Instead, we will try to convince the governance with rational arguments, such as our better competitiveness compared to other market proposals," he points out.

This appeal therefore remains to be demonstrated, even if the governance will probably be able to negotiate a reduction in issuer fees, which will mechanically benefit the community.

After the airdrop, the USUAL token will be distributed as a return to users who have locked up their USD0 on the platform. Usual's aim is to make the amount paid out in USUAL more attractive than that in USD0 (users will be able to choose between these two types of reward by early 2025).

Initially, opting for USUAL will be particularly advantageous due to its high issue rate.

• The amount of USUAL issued depends on the number of new USD0++ created (i.e. the number of USD0 staked), which corresponds to the total value tied up in the protocol (TVL), as well as its income.
• The rate of issuance of USUAL per dollar immobilised decreases over time, and this process accelerates as TVL increases.
• USUAL is issued each time new USD0++ are created, reflecting the protocol's TVL and its revenues.

"What you need to understand is that the distribution of USUAL will always be correlated to future revenues," explains Pierre Person. "We wanted to take the opposite approach to projects that sell the user the residual of something that is highly speculative, whereas the initial investors have invested in equity or in the vehicle that receives the protocol's revenues," he insists.This is notably the case with the American project Ondo, whose token has virtually no use and is not linked to the company's revenues.

‍> Read our analysis of the Ondo Finance protocol

‍"The Usual protocol captures 100% of the revenue generated, which is managed by the protocol's governance, and we do not distribute new USUAL tokens without the assurance of future cash flows," says Pierre Person. With one cardinal notion: token inflation will always be lower than revenue inflation.

This strategy justifies locking in USD0s for a period of 4 years to ensure Usual has a sustainable source of revenue over time. This choice allows the protocol to adjust the level of issuance of the Usual token.

90% of the tokens will be reserved for the community. The remaining 10% are reserved for the team and initial investors.

"This radical approach required a lot of education as part of our fundraising, as venture capital funds are used to receiving larger allocations," recalls Pierre Person. "But we are keen not to be a 'VC corner' that could threaten retail investors, we have designed a model so that it works and is based on real value," he insists.

Before its official launch, Usual is offering a points programme where users can collect 'pills', convertible into USUAL on an airdrop representing 7.5% of the total offer at TGE. These pills are earned through various activities: loans on Morpho, contributing liquidity on Curve or Pendle, or referring friends.

Challenges and risks 🥵

The project's main technical risk lies in a possible flaw in its smart contracts, a challenge common to all DeFi projects. To reassure users, the project has published a series of independent audits.

The risk associated with the assets backing USD0 is relatively low. It would take a US default or a major crisis in the traditional financial market to affect it significantly.

"We have selected the safest real-world tokenised assets offering a return in dollars," says Pierre Person.

At present, Usual's major challenge is to accumulate enough TVLs to establish itself as a systemic player, capable of ensuring a wide distribution of USD0s not staked in USD0++.

This distribution is crucial because USD0s generate the protocol's net profit.

If all users tie up their USD0s for yield, the protocol cannot generate net revenue. In a scenario where all USD0s are staked, the economic system would be just breaking even, which could stunt its growth and ultimately erode trust in USUAL.

Usual's decentralised governance model, based on the USUAL token, also presents challenges. Low participation by token holders would risk concentrating decision-making power in the hands of a minority, potentially compromising Usual's fundamental principle of decentralisation. This could lead to decisions that do not reflect the interests of the community as a whole.

Regulation ⚖️

The stablecoin sector is under increased scrutiny by regulators in many countries, particularly in Europe, as evidenced by the MiCA regulatory framework, which came into force on 30 June this year.

Usual is positioned as a decentralised protocol that holds no cash reserves, which theoretically excludes it from MiCA (which focuses on centralised stablecoins). However, the risk of requalification remains.

To date, Usual should benefit from a DeFi exemption, but the details of this have not yet been communicated by the regulator.

"The legal risk is omnipresent because the law does not always correspond to use cases or technological principles," warns Pierre Person. "Nonetheless, I remain confident about the European framework, which has demonstrated its willingness to encourage innovation on projects like ours," stresses the former MP, the architect of the French regime that subsequently inspired the European framework.

The USUAL token is likely to be listed on certain exchange platforms (Kraken being an investor in the project), but the question remains open regarding the USD0 stablecoin.

As for the risk of reclassification as a traditional financial security, the entrepreneur dodges: "This is mainly an American debate and our lawyers are convinced that our model does not correspond to this definition in Europe".

With regard to the US question, the outcome of the presidential election could pave the way for regulatory relaxation across the Atlantic.

Usual claims to comply with international standards and to be able to freeze addresses belonging to users reported by various authorities. Tools such as Chainalysis are expected to be integrated into the protocol soon.

Roadmap 🗺️

Usual plans to issue its governance token at the end of 2024 and will then begin distributing returns in the form of USUAL tokens.

In December 2024, users will likely be able to vote to select new assets as collateral.

From January 2025, it will be possible to choose between USD0 or USUAL returns.

Also in January, users will be able to opt for different USD0 staking durations and will have the option to end staking at any time (before the required 4 years) in exchange for USUAL tokens.

Once these services are launched, Usual plans to introduce new synthetic assets (distinct from USD0) to bolster the community's cash flow. "Offering other assets seems crucial to us if central bank rates continue to fall," explains Pierre Person.

The team will then focus on creating a DAppChain in 2025 (a Usual blockchain), potentially in the form of an L2 or L3 on Ethereum. Although still at the brainstorming stage, this project could make USUAL the governance token for this DAppChain.

"Our current priority is liquidity, but in the future it will be essential to master our infrastructure to offer more services. This will enable our stablecoin to become a real bridge between crypto finance and traditional finance," stresses Pierre Person.

In the long term, Usual could thus diversify into fintech services, particularly loans.

Competitors ⚔️

The capitalisation of stablecoins is now $170 billion. USDT dominates the market with $118 billion, representing 70% market share, followed by USDC with $35 billion, accounting for around 21%.

Facing these giants, Usual must also navigate a highly competitive environment populated by strong decentralised competitors.

👉 Sky / Maker (DAI)

Sky (ex-MakerDAO) is among the pioneers of decentralised stablecoins with DAI, a stablecoin overcollateralised by digital assets such as Ether (ETH). Its decentralised governance and peg to the US dollar have seen it widely adopted in the DeFi ecosystem. Despite its flexibility, MakerDAO faces challenges related to the complexity of its system and the risks of excessive over-collateralisation in the event of high volatility. It has a capitalisation of $5.3 billion (read our analysis of Sky).

👉 Liquity (LUSD)

LUSD is a decentralised stablecoin fully backed by ETH, with no governance and variable borrowing fees depending on market conditions. Liquity stands out for its resistance to censorship, lack of KYC and robust collateralisation. However, its reliance on ETH as its sole collateral makes it vulnerable to fluctuations in this asset. It has a capitalisation of $366 million.

👉 Aave (GHO)

Aave's decentralised GHO stablecoin is issued against collateral deposited on the Aave protocol. Deeply integrated into the Aave ecosystem, GHO offers high collateralisation flexibility and allows AAVE token holders to participate in governance. Although supported by the Aave community, GHO will need to demonstrate its stability and overcome the challenges of volatile collateralised assets and fierce competition in the stablecoin sector. It is capitalised at $156 million.

👉 M^0

M^0 (still in development) is based on the idea that the various user interaction platforms (centralised and decentralised exchanges, wallets, applications, etc.) play a crucial role in the distribution of stablecoins.) play a crucial role in the distribution and success of stablecoins.

M^0 therefore aims to rely on these platforms by allowing them to issue a common fungible stablecoin, the "M", and receive returns linked to the Ms they distribute, rather than participating in the distribution of stablecoins without profiting from them. Platforms adopting the M would then have the freedom to share these returns with their users or not.

The Big Whale's view 🐳

In a market dominated by giants Tether and Circle, Usual aims to overcome the limitations of centralised stablecoins by adopting a decentralised, transparent and user-centric approach. Usual offers governance rights to its users and redistributes the protocol's revenues, aligning their interests with those of the project.

To date, Usual stands out as one of the stablecoin projects with the most ingenious infrastructure, with the ambition of giving all of its revenues back to the community - a relatively unique model.

However, with a capitalisation of $250 million, USD0 represents less than 1% of the total stablecoin market, estimated at $170 billion.

This figure needs to be contextualised: stablecoin was only launched in July 2024, and its governance token, USUAL, is scheduled for Q4 2024. This market entry demonstrates rapid progress and notable capitalisation for a nascent project, but raises questions about its ability to establish itself in a highly competitive environment.

To compete with the established leaders, Usual will need to demonstrate the effectiveness of its model while overcoming the challenges associated with liquidity and user adoption.

Competition is intensifying with the emergence of new decentralised stablecoins and other innovative DeFi solutions. To become a major market player, Usual will need to prove its ability to offer attractive returns, maintain participatory governance and guarantee the security and transparency of its protocol.

Although young - with only a few months of existence for USD0 and the USUAL token still in the pre-launch phase - Usual shows significant potential to transform the stablecoin landscape. Its value proposition aims to solve key problems and meet a growing demand for more transparent and decentralised alternatives.

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