Three-Minute Quick Read Usual Protocol: How to Build RWA Collateralized Stablecoin USD0?

Author: 1912212.eth, Foresight News

The holy grail of the cryptocurrency industry has always been to achieve a monetary status. Since the birth of Bitcoin, the dream of realizing monetary attributes has been relentlessly pursued. Interestingly, the cryptocurrency that has truly achieved large-scale payment attributes is not the originally created BTC, but stablecoins. Stablecoins are also the first use case for RWA. Whether it is fiat-backed stablecoins or algorithmic stablecoins regarded as the crown jewels, they are all competing for the holy grail. USDT leads with its total market capitalization, USDC has gained fame through compliance, and the rising star algorithmic stablecoin USDe is making its mark with celebrity endorsements and continuous brand collaborations.

Stablecoins are also profit-printing machines. In the first quarter of this year, Tether, the issuer of USDT, reported profits exceeding $4.52 billion, setting a historical high. In comparison, Tether's net profit for the entire year of 2023 is only $6.2 billion, highlighting the dramatic growth in its profit margins.

The profitable track is never short of new entrants. The stablecoin startup Usual Labs completed a $7 million financing round in April this year, led by IOSG and Kraken Ventures, with participation from GSR, Mantle, StarkWare, and others. Usual Labs subsequently launched the stablecoin USD0 at the end of May.

What is Usual Labs?

Usual Labs is a stablecoin startup that is building the DeFi protocol Usual Protocol, with its core product being the stablecoin USD0. According to Usual, the problem with the traditional financial system is that the profits from customer deposits flow into the banks' own pockets while transferring the risks to the public. Fiat-backed stablecoins are not without flaws, as the centralized participants behind them share the same structural issues as traditional banking.

How does Usual Protocol operate?

When users deposit assets, they receive a synthetic asset called Liquid Deposit Token (LDT), which represents their initial deposit value in the Usual protocol. LDT can be freely traded without permission and is backed 1:1 by the original assets deposited in the protocol. LDT provides holders with permanent withdrawal rights, allowing them to redeem the underlying assets at any time under normal circumstances.

This way, users can leverage LDT to unlock profit opportunities, such as providing liquidity or issuing Liquidity Bond Tokens (LBT). LBT is created by locking LDT for a period of time, providing liquidity, transferability, and composability, facilitating seamless integration and trading within DeFi. Participating users will also receive Usual's governance tokens.

What are the characteristics of the stablecoin USD0?

The stablecoin USD0 is the most important product on the Usual protocol and is also the first LDT on the protocol. Its name derives from its equivalence to central bank money (M0) on Usual, hence USD0. Unlike stablecoins such as USDT and USDC, USD0 is backed 1:1 by ultra-short-term real-world assets (RWA).

Due to the reserve system of some banks, fiat-backed stablecoins also face risks. The Silicon Valley Bank incident last year demonstrated the systemic risks in DeFi caused by insufficient collateral in traditional commercial banks.

USD0 addresses these concerns from multiple angles. Firstly, it selects government bonds as its best option due to their high liquidity and safety. Secondly, to ensure asset stability, the issuer must use assets with very short maturities as collateral for the stablecoin, ensuring that holders receive a high level of security. This strategy can prevent forced liquidation at discounted prices during mass redemptions and mitigate the impact of volatility events that could decrease collateral value.

Usual has now integrated with Hashnote, and is awaiting confirmation from Ondo, Backed, M^0, Blackrock, Adapt3r, and Spiko. It can be anticipated that after the completion of these integrations, its liquidity will be significantly enhanced.

Usual Token Distribution: 90% to the Community

Currently, the official tokenomics details have not been released, but the utility of the Usual token has been clarified, primarily including governance and utility. Usual adopts a deflationary mechanism design, allowing early adopters to receive more tokens. As TVL increases, the distribution of Usual tokens becomes scarcer.

Additionally, Usual holders have control over the treasury and can participate in the decision-making process when acting as governance tokens. Staking tokens can also yield rewards while supporting the security of the protocol.

Unlike other protocols that allocate 50% of the total tokens to VCs and advisors, Usual allocates 90% of the total token supply to the community, with internal team members receiving no more than 10% of the circulating supply. This approach highlights the community's spirit of "decentralization" amid the growing calls for "fairness."

Conclusion

Usual has chosen RWA support to redesign the stablecoin USD0 in the competitive landscape of fiat-backed and algorithmic stablecoins. The stablecoin market holds immense potential, and it will be interesting to observe how USD0 performs in the future.