Preface: Ouroboros DeFi Methodology
At the Ouroboros DeFi Yield Fund, our investment strategy is always rooted in identifying and providing liquidity to high-quality projects. As liquidity providers, we focus on concentrating liquidity on the protocols we have the most confidence in. Our belief is simple: quality projects can get listed on top CEXs, thereby achieving premium valuations. A good recent example is Ether.Fi in the LRT vertical, where early recognition of its quality and successful liquidity deployment has resulted in a significant valuation premium compared to its peers.
Investment Thesis: Usual Money
When Usual Money came into our investment radar, there were several signs that it is a high-quality project.
- Concise yet Powerful Token Economics: The concept of Usual Money may seem simple on the surface, but it has far-reaching implications: it is a decentralized T-Bill that promises to allocate 90% of its value to the community. Following the success of HYPE's TGE, we have seen this model succeed, with token economics highly aligned with community incentives, driving exponential growth.
- Value Accrual to $USUAL: Usual allocates its governance token $USUAL to stablecoin holders, rather than T-Bill yields. It then uses the majority of T-Bill yields to buyback $USUAL governance tokens.
- Token Value and TVL Flywheel: The buyback of $USUAL governance tokens will link the quantity to the token price. We like Usual's TVL flywheel - as TVL grows, the value accrued to the token increases, leading to a rise in token price, and in turn, more attractive APYs.
Valuation Framework:
The valuation of the $USUAL token is relatively straightforward, providing a convenient valuation floor for the market:
- At a $100M TVL and 4% T-Bill yields, it generates $4M in earnings.
- At a 25x P/E multiple, this implies a $100M fully diluted valuation (FDV), or 1x FDV/TVL.
- At a 20% float, this translates to a $20M market cap (MC) and $5M in buyback support, forming a robust valuation floor.
- In comparison, Ethena trades at 2-3x FDV/TVL.
Listing Potential:
- Stellar Team: The team behind Usual Money makes it a strong contender for top exchange listings. Pierre Person, the CEO and co-founder of Usual Money, is a former French Member of Parliament and has contributed to the country's crypto regulatory framework.
- Real Revenue: Recently, top exchanges like Binance have expressed a preference for listing projects with high value accrual. With a $300M TVL (at the time) and 4% US T-Bill yields, Usual's annualized revenue is around $12M, placing it among the top 30 projects by value accrual.
- Binance's listing further validates our prediction that high-quality projects and teams can secure top exchange listings.
Mispricing Opportunity
Once we confirmed Usual as a potential listing candidate, we began searching for mispricing opportunities. Our monitoring system had flagged Usual's valuation as significantly underpriced well in advance.
The market had at one point priced the project at less than 15% APY, implying a $150M FDV for a $200M-$300M TVL project, with a market cap of around $20M. In contrast, Ethena was priced at 2-3x FDV/TVL, while Usual was priced at 0.5x FDV/TVL.
We capitalized on this mispricing by taking leveraged USDC++ borrowing positions on Morpho. At the time, USDC borrowing rates on Morpho were around 10-15% (sometimes 20%). While the borrowing costs were high, we viewed it as an asymmetric directional bet, believing the project's fundamentals were undervalued. We persisted with this mispricing and successfully captured it.
Outcome and Validation: Bull Case Realized
Our investment thesis was validated after the Binance listing announcement, which quickly corrected the undervaluation. This result further reinforced our view: high-quality projects, once widely recognized by the market, will achieve premium valuations. This outcome validated our investment philosophy: early identification of quality projects and conviction in our analysis can deliver outsized returns.
Conclusion
Usual Money embodies the key elements that the Ouroboros DeFi Yield Fund focuses on when seeking projects to deploy liquidity:
- High-quality projects
- Recognition that top projects can achieve early listings and premium valuations
- Capturing mispricing opportunities in non-obvious places (e.g., paying a premium on Morpho)
- In this instance, the mispricing we identified provided us with a yield opportunity, while also embedding an asymmetric directional bet.
