IOSG Family｜The Resurgence of Usual in Adversity: Why Are They So Extraordinary?

With the achievement of this important milestone, we hope everyone pays attention to this unique opportunity and understands 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 came to recognize the investment in Usual and some thoughts before deciding to lead the investment. Thanks to the IOSG investment team for playing a key role in the Usual investment decision, as well as the post-investment team for their support and assistance during Usual's growth. Special thanks to Jocy and Momir for providing the original materials and to Shirley for editing the content.

Reviewing Our Journey from Recognizing to Investing in Usual

First Encounter with the Usual Team

In June 2023, amidst a sluggish cryptocurrency market, Bitcoin struggled to maintain around $25,000, and many investment institutions chose to refrain from making moves or to wait and see. It was at this time that we met Usual's founders, Pierre and Adli. A shocking USDC de-pegging event had just occurred, revealing risks and vulnerabilities even in the safest stablecoins, while paradoxically, USDT reported record profits and was even expected to surpass BlackRock this year. This contradictory phenomenon in the stablecoin market highlighted both severe vulnerabilities and immense potential.

In July, our investment team specifically visited Usual's office in Paris, where they had assembled an eight-person team using their own funds and had booked a modest meeting room in a shared office to pitch and converse with us. We communicated for about two hours, and that week we also arranged a second meeting with Usual's CTO to discuss technology. Pierre, the founder, has an interesting background as a former French congressman and advisor to President Macron.

Deepening Our Understanding of Usual's Product Design

When Pierre articulated their vision, we were initially struck by its depth and detail. Their strong passion and meticulous thinking were evident, which meant we had to invest more time to understand them and assess the investment potential.

During the due diligence process, we conducted multiple internal and external meetings and detailed written communications, ultimately accumulating 50-70 pages of materials. As we delved deeper, we became increasingly impressed by how they meticulously integrated every detail into a larger vision. Their responses to our questions were never vague; instead, they were always based on thorough research, demonstrating a profound understanding of future challenges.

What truly set them apart was not just their technical prowess or attention to detail, but their genuine passion and belief. Clearly, they lived and breathed Usual 24/7 (which is quite different from the typical perception of the French); their enthusiasm was infectious, convincing us of their vision to disrupt Tether. We clearly saw that these individuals were not chasing a market cycle but were fundamentally aiming to change the landscape of stablecoins.

Difficult but Resolute Investment Decision

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 took nearly two months to complete the entire round of financing. In fact, IOSG invests in fewer than 15 deals each year, of which about five we will lead. The process of leading an investment is quite challenging, as exemplified by the Usual case. After confirming our lead, we compiled a complete list of Eastern and Western investors for the project, but at that time, none of these investors provided any commitments within a month; everyone wanted to wait and see, uncertain if the financing would succeed. During the toughest times, our colleague Momir even personally attended an investment committee meeting to help explain Usual's entire stablecoin and DeFi mechanism design and answer their questions. Fortunately, this institution eventually came on board. This deal made us feel an unprecedented lack of consensus; when 20 mainstream investment funds in the industry said no, we remained resolute and continued to support the team in completing that round of financing, which was certainly aided by the founders' resilience and persistence.

Ironically, even the fund that introduced Usual to us ultimately abandoned this round of investment. At one point, a local early-stage fund in France pointed out that foreign investors did not recognize Pierre's outstanding background, yet they themselves also chose to forgo this round of investment. Looking back at Usual's financing journey, it is regrettable that among the many VC funds they approached, only 3-5 truly delved into the project's details.

During the three months of financing completion, we watched as Pierre and Adli continuously refined their vision and advanced development progress. The resilience displayed during this period further strengthened our conviction. Ultimately, we were fortunate to complete this round of financing with like-minded funds such as Kraken Ventures, who also invested significant time to understand the details of Usual's vision.

Like-Minded, Moving Forward Together

After the investment, the team's execution speed even surprised us. Their attention to detail during the preparation phase translated into outstanding execution in practice. They achieved milestones faster than our most optimistic expectations. Later, the IOSG post-investment team joined in, organizing a list of well-known KOLs from both East and West, and after multiple discussions and screenings, helped the Usual team select KOLs with diverse backgrounds and strengths, introducing and recommending them one by one. Additionally, through multiple pitches to one of Asia's largest TVL communities, we helped Usual successfully enter this largest DeFi community in Asia, allowing their product to secure its first $200 million TVL during the gray testing phase.

Reflecting on this journey, it should serve as encouragement for future founders. It doesn't matter how many "No"s you receive; you only need one "Yes" to trigger an avalanche effect. Today, we are more convinced than ever that our "willingness" towards Usual will become one of our most important decisions. Sometimes, that's all it takes - to say "Yes" at the right moment, to the right team, with the right vision.

The difficult journey makes these important milestones even more gratifying. We are delighted to see Usual beginning to receive the recognition it deserves, while also being acutely aware that this is just the beginning of a long journey. There is still a lot of work to be done ahead. We firmly believe that Usual has the potential to set a new gold standard for stablecoins. With a focused team, revolutionary on-chain infrastructure, and innovative token economics, Usual is ready to challenge Tether. If successful, this "vampire attack" could bring about the most significant wealth generation effect in this bull market.

Once again, thanks to all IOSG team members who supported the decision to invest in Usual during the depths of the bear market. Usual's growth has allowed the team to experience the power of growing alongside the founders, with each member becoming an ambassador for Usual. As a perennial fund in the crypto industry, we understand the difficulties of investment endeavors, but we are willing to help entrepreneurs in the crypto industry reach for the stars and achieve success! We also look forward to the next entrepreneur who comes to us becoming the new Usual!

You're unUSUAL!

Next, let's review some memos and thoughts written by our investment colleagues in 2023

Let’s start with a background story and a simple question: why has BlackRock suddenly become so interested in blockchain technology? Is BlackRock embracing the concept of cryptocurrency? Perhaps not. Do they see the long-term advantages of replacing traditional financial infrastructure with blockchain technology? To some extent, yes.

But the real core driver may be the considerable business opportunities currently present in the blockchain space.

This leads us to the story of Tether (the legendary company behind USDT).

Tether: The Best Business Model Ever

Last year, Tether made headlines for exceeding BlackRock in net income for the first quarter, despite BlackRock managing assets over 120 times larger. How is this possible?

Excerpt from the IOSG 2023 Usual Investment Memo

Tether's core business is accepting fiat collateral in off-chain bank accounts and issuing digital representations of that fiat, namely USDT. This model is considered one of the most competitive business models in the financial industry for the following reasons:

• 100% collateral investment flexibility: Tether can freely manage the fiat it receives.

• Retaining 100% of investment returns: All profits remain within the company.

• Huge operational leverage and profit margins: Operating costs remain constant regardless of scale.

By investing fiat in interest-bearing assets like government bonds, Tether generates billions of dollars in annualized income from its $140 billion in managed assets. Unlike banks, they do not need to share these earnings with users, as users primarily care about the stablecoin itself and its utility as a widely accepted payment medium.

Another key point is that this type of business has significant operational 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.

Expanding to Trillions: The Demand for Risk-Free Stablecoins

Despite its success, existing stablecoin providers like Tether and Circle still face several critical issues that need to be addressed. For example, the collapse of Silicon Valley Bank (SVB) exposed some potential risks, indicating that stablecoins are not without risk. Moreover, if any risks materialize, users will be the first to suffer.

Lack of Transparency

During the Silicon Valley Bank crisis, the public was unaware of whether any stablecoin providers were affected. This highlighted a significant transparency issue. The lack of transparency not only undermines user trust but may also lead to regulatory risks due to information asymmetry, potentially resulting in stablecoins being reclassified as securities.

Vulnerability to Bank Runs

Despite holding only a small amount of assets at SVB, Circle still faced the risk of a death spiral, indicating flaws in its risk management. Due to large deposits held in individual accounts, Circle's deposits were uninsured. Without intervention from the U.S. government, Circle could face a catastrophic bank run, as it intended to maintain a 1:1 redemption even if the value of its collateral had depreciated.

Principled Variability

Existing stablecoins, such as Tether and Circle, are not designed to meet the future trillion-dollar demand. They rely on human judgment, lack predictability and immutable principles, and are susceptible to black swan risks, which could have catastrophic consequences for the broader crypto industry. The stablecoins we should have should possess immutability and be built on clearly established rules for permanent service.

Overexposure to Risk

While Circle is the only stablecoin provider visibly affected by the collapse of SVB, this does not mean Tether's management is more prudent; it has simply been luckier so far. Some even argue that given Tether's scale, the aforementioned risks are more pronounced within Tether, which is concerning. Tether has recently begun addressing some of these issues to mitigate certain black swan risks. However, a review of its balance sheet shows that it has a high degree of flexibility in managing off-chain funds, with billions 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

Formulating an investment strategy to absorb billions of dollars during a bull market is one thing; building a stablecoin capable of scaling to trillions is another. Usual is tackling the latter challenge.

In recent years, it has become clear that stablecoins will gradually replace volatile cryptocurrencies as the primary payment medium on the blockchain. Even just to meet the existing demand for stablecoins of approximately $200 billion, the necessity of using external assets as collateral has become increasingly evident. To this end, the infrastructure that Usual is building has the following characteristics:

• Predictable operation based on immutable principles: Usual's design ensures the stability and reliability of its operations, reducing user uncertainty.

• Maximized transparency: By enhancing transparency, Usual builds user trust, ensuring stakeholders are well-informed about fund flows and asset collateralization.

• Minimized risk of bank runs and mitigation of black swan events: Usual's mechanisms are meticulously designed to avoid the risk of bank runs and effectively respond to unexpected events.

Given the critical infrastructure role of stablecoins in the financial system, their design should adopt a pessimistic approach. Usual's on-chain infrastructure is carefully designed for seamless scalability, effectively aggregating quality collateral while avoiding bank runs.

However, risk-averse and conservative designs often struggle to guide and achieve scale growth. Most new RWA-backed stablecoins lack appeal for early adopters, who are unlikely to be attracted by modest 5% annual yield rebase stablecoins. Without the impetus provided by early adopters, these projects are unlikely to reach the scale necessary to attract institutional interest, making their prospects dim.

Risk-Averse Stablecoins x Aggressive Governance Token Design

In contrast, Usual Money employs an innovative approach that separates its primary token—risk-averse stablecoin—from the profits fully allocated to governance tokens. This model not only encourages users to participate due to speculative and wealth creation opportunities but also cultivates strong network effects over time to ensure long-term user retention. The distribution mechanism for governance tokens is designed to reward early participants generously. As Usual scales and builds network effects over time, the mining of additional governance tokens will cease, effectively capping the supply of governance tokens.

Considering the scale of opportunity: if Tether were to go public today, its valuation could exceed $50 billion (conservatively estimated), based on approximately $140 billion in productive managed assets and a conservative price-to-earnings ratio. If Tether chooses to return this value to the community, it could potentially provide all users with at least a 50% one-time gain.

Meanwhile, Usual Money is not merely separating stablecoin products from governance tokens that will be distributed according to a logarithmic function. For those willing to make additional commitments and maximize returns, Usual plans to introduce a token economic model that incorporates complex game theory, representing the most innovative design since the advent of veCRV.

Outstanding Team and Vision

About the team: The product is highly aligned with the founders. The team is vibrant and professional, leaving a strong and unique impression during calls: they are charismatic, sharp-minded, business-oriented, and adept at showcasing their ideas. The co-founders complement each other’s strengths, possessing excellent networks in both the cryptocurrency and traditional finance sectors. - Excerpt from the IOSG 2023 Usual Investment Memo

After engaging with hundreds of teams in the crypto space over the past four years, we can confidently say that Usual ranks among the top tier. The Usual team is unparalleled in energy, dedication to the project, urgency from day one, and a desire to prove themselves and execute a grand vision. They possess the right combination of legal and financial expertise needed to build a risk-averse stablecoin design, while also having sufficient crypto-native qualities to know how to guide the community and complete the first phase of product scaling.

Usual has the potential to set a new gold standard for stablecoins. With a focused team, revolutionary on-chain infrastructure, and innovative token economics, Usual is ready to challenge Tether. If successful, this "vampire attack" could bring about the most significant wealth generation effect in this bull market.