Congrats to Usual Money for reaching the public mainnet after two years of hard work! With this major milestone, we wanted to reflect on the opportunity they are pursuing and why we think this could be the biggest wealth generation opportunity in this cycle. Check the original post on X.
It's best to start with a background story and a simple question: why is Blackrock all of a sudden interested in blockchain tech?
Is BlackRock embracing the crypto ideology? Probably not. Do they see long-term benefits in replacing traditional financial infrastructure with blockchain rails? To some extent, yes. However, the main reason is likely the impressive business opportunities available today.
This leads us to the story of Tether, a company behind USDT.
Tether: The Best Business Model Ever
Last year, Tether made headlines when it was reported that their Q1 net income surpassed BlackRock’s, despite BlackRock managing over 120 times more assets. How is this even possible?
Tether’s core business involves accepting fiat collateral in off-chain bank accounts and issuing digital representations of this fiat, known as USDT.
It arguably has the best business model in finance-related industries, for several reasons:
- Flexibility to Invest 100% of Collateral: They can freely manage the fiat dollars they receive.
- Retention of 100% of Investment Proceeds: All profits stay within the company.
- Huge Operating Leverage and Profit Margin: Operating costs remain constant regardless of scale.
By investing fiat into productive assets like T-bills, Tether is on track to generate $6 billion in annualized revenue from $110 billion under management. Unlike banks, they don’t need to share revenue with users, who are primarily interested in the stablecoin itself and its utility as a broadly accepted medium of payment. The final part of the equation is that they have huge operating leverage for this sort of business. Tether operating expenses remain relatively constant regardless of whether they manage $10 billion, $100 billion, or $1 trillion. This scalability provides immense opportunities.
Scaling to Trillions: The Need for Risk-Free Stablecoin
Despite their success, current stablecoin providers like Tether and Circle face several critical issues that need to be addressed. Some of the issues came to the surface with Silicon Valley Bank (SVB) failure when it became apparent that stablecoins are not without risk. Moreover, should any of the risks materialize, the users would be the first to suffer.
Lack of transparency
During the Silicon Valley Bank (SVB) crisis, the public was unaware if any stablecoin providers were affected. This highlights a significant transparency issue. Lack of transparency not only undermines user trust but also creates regulatory risks, potentially classifying stablecoins as securities due to information asymmetry.
Vulnerability to bank runs
Despite having just a small percentage of total assets held in SVB, Circle was exposed to the risk of the death spiral, showcasing poor risk management. Due to the large amount held under one account, Circle’s deposits were uninsured. Without the US government intervention, Circle could have faced a catastrophic bank run because of intending to keep redemption going at 1:1 even though the value of the collateral had been depreciated.
Mutable in principle
Current stablecoins like Tether and Circle are not designed to handle future demand for trillions of dollars. Their reliance on human judgment, unpredictability, and lack of immutable principles make them susceptible to black swan risks that due to their scale could have catastrophic implications for the broader crypto industry. The stablecoin we deserve should be immutable, built on well-established rules serving into perpetuity.
Excessive risk-taking
Although Circle was the only stablecoin provider visibly affected by the SVB failure, this does not imply that Tether’s management is more prudent; it has simply been more fortunate thus far. One could even argue that the risks mentioned earlier are more pronounced at Tether, which is alarming given its scale. Tether has recently begun addressing some of these issues and mitigating some black swan risks. However, an examination of their balance sheet reveals a high degree of flexibility in managing off-chain funds. Several billion dollars are tied up in illiquid positions such as secured loans and ‘other investments.’ Are USDT holders adequately compensated for the risks associated with these lending and investment activities?
Introducing Usual: A User-Owned, Systemic Risk-Free Stablecoin
Building an investment strategy to absorb a few billion dollars in 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 replace volatile cryptocurrencies as the primary medium of payment on blockchain rails. Even to satisfy the existing demand of $150B for stablecoins its clear that we need exogenous assets as the collateral. To meet the existing $150 billion demand for stablecoins, exogenous assets as collateral are necessary. Usual is building infrastructure that:
- Operates Predictably According to Immutable Principles
- Maximizes Transparency
- Minimizes Bank Run Risks and Mitigates Black Swan Events
The stablecoin should be designed pessimistically, considering its critical infrastructure role. Usual’s on-chain infrastructure is meticulously designed to scale seamlessly, with mechanisms to avoid bank runs and aggregate pristine collateral effectively.
However, risk-averse and conservative designs often struggle to bootstrap and achieve scale. Most new RWA-backed stablecoins lack the appeal of early adopters, who are unlikely to be enticed by a rebase stablecoin offering a modest 5% annual yield. Without the momentum provided by early adopters, these projects are unlikely to reach the scale necessary to attract institutional interest, facing a grim future.
Risk Averse Stablecoin x Degen Governance Token Design
Usual Money, by contrast, employs an innovative approach by separating the principal token — the risk-averse stablecoin — from the yield, which is fully distributed to the governance token. This model encourages users to join because of speculation and wealth generation opportunities, while over time it cultivates robust network effects that ensure users stay for the long term. The distribution mechanism for the governance token is designed to heavily reward early participants. Over time, as Usual scales and establishes network effects, mining additional governance tokens will cease, effectively capping the supply.
Consider the magnitude of the opportunity: if Tether were to go public today, its valuation would likely exceed $50 billion, based on approximately $110 billion in assets under management that are productively employed and a conservative price-to-earnings ratio of around 10. If Tether opted to distribute this value back to its community, it could result in a one-time payout of at least 50% for all its users.
Usual Money, meanwhile, goes beyond simply separating the stablecoin product from the governance token which will be distributed according to a logarithmic function. For those willing to make additional commitments and maximize their rewards, Usual plans to introduce a token economics model that incorporates sophisticated game theory, representing the most innovative design since the advent of veCRV.
To prevent premature disclosure, the protocol’s white paper and token economics paper will be released soon, allowing the community ample time to familiarize themselves with the key points before the token generation event.
Exceptional Team and Vision
Having met hundreds of teams in the crypto space over the past four years, I can say that Usual is among the top echelon. The Usual team is unmatched in their energy, dedication to the project, sense of urgency since day 1, and hunger to prove themselves and execute a big vision. They have the right combination of legal and financial expertise that is necessary to build the risk-averse stablecoin design, and enough crypto-nativeness to know how to bootstrap the community and go through the first stage of scaling the product.
Usual has the potential to set the new gold standard for stablecoins. With a dedicated team, revolutionary on-chain infrastructure, and innovative tokenomics, Usual is poised to challenge Tether. If successful, this “vampire attack” could result in the most significant wealth generation effect of this bull cycle.
Usual Money: Time to Untether 💊 was originally published in IOSG Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.
