In-depth analysis of Usual Money: Beware of retail investor liquidity honeypots, lock-up period of 4 years at USD0++

Author: @Web3Mario (_mario)

Summary: This week continued studying the relevant documentation of the Telegram API. I must say, I find the documentation style of the Telegram series quite unappealing; it has a somewhat ‘Russian hardcore’ feel to it. During my free time, I chatted with a friend about a rather interesting stablecoin project that seems to be gaining some traction lately, Usual Money. Since I have always maintained an interest in researching stablecoin projects, I quickly spent some time doing some research. I have some insights to share, hoping to help everyone look at or participate in this project more cautiously. Overall, I believe the core innovation of Usual Money lies in its tokenomics design, which supports the value of its governance token $Usual by using the profits from interest-bearing Collateral, and by encapsulating a 4-year bond product USD0++, it drops the liquidity of USD0 and ensures the relative stability of the aforementioned profit flow. However, for retail investors with smaller capital, USD0++ is equivalent to a Liquidity honeypot, and caution is needed when participating.

Analysis of the Mechanism and Core Selling Points of Usual Money

After the points activity started last month, some PR articles introducing Usual Money have appeared on the Chinese internet, and interested friends can learn more on their own. Here, I would like to briefly review and add some interesting information. In looking at other introduction articles, it is mentioned that the founder of Usual Money is a former French politician, and at one point I thought he should be an older politician, utilizing his influence near the end of his political career to seek a generous pension for himself. However, this founder is actually very young, Pierre Person, who was born on January 22, 1989, and served as a member of the National Assembly for Paris’s 6th constituency from 2017 to 2022. During his political career, he mainly worked as an election advisor and political ally of French President Macron. He belongs to the French Socialist Party and is positioned on the left side of the political spectrum, being involved in bills relating to LGBT healthcare and cannabis legalization during his term, which basically fits the image of a typical “white left elite.”

Considering his political background, his choice to transition from politics to business this year can be understood, as the Renaissance Party (centrist) led by Macron lost to the left-wing alliance “New People’s Front” in the 2024 National Assembly elections, and was not far behind the far-right National Rally in third place. This essentially means that France’s political environment is becoming increasingly extreme, in line with much of the Western world. Therefore, as a representative of the establishment, Macron’s important political ally, Pierre Person, choosing to switch careers at this time can indeed be seen as a wise decision.

The reason for adding this information is to help everyone understand what the founder’s expectations for the project are, which determines how much resources he is willing to invest in it. Back to Usual Money, this is a stablecoin protocol, whose core mechanism consists of three types of tokens: the first, USD0, is a stablecoin issued with RWA assets as reserves at a 1:1 ratio; the second, USD0++, is a circulating certificate for a 4-year USD0 bond designed by it; the third, Usual, is its governance token.

We know that the current stablecoin sector can be divided into three main categories based on the direction of evolution. These mainly include:

• High Efficiency Medium of Exchange: These projects mainly refer to fiat-backed stablecoins like USDT and USDC. Their primary use value is to bridge the gap between real-world assets and on-chain assets. Therefore, the focus of these projects is on how to create more liquidity for the issuance of assets, thus providing users with a better trading experience to increase adoption.
• Anti-censorship: This type of project mainly refers to collateralized decentralized stablecoins such as DAI and FRAX. Their primary value lies in providing a store of value and risk-hedging capabilities for funds with high privacy requirements, under the premise of anti-censorship. Thus, the construction focus of these projects is on how to increase the stability of the protocol as much as possible while ensuring a high degree of decentralization, with stronger fault tolerance in dealing with risks such as bank runs.
• Income-generating Low Fluctuation Wealth Management Product Certificate: This type of project mainly refers to USDe, which packages a certificate of a low-risk wealth management product with Delta risk neutrality into a stablecoin. Their primary value is to capture more income for users while ensuring low fluctuation of the principal as much as possible. Therefore, the focus of these projects is on how to find more low-risk high-return investment portfolios.

In the actual evolution of the project, these attributes blend with each other, but usually, the core innovation point of a project is one of the three mentioned above. Usual Money belongs to the third category. Therefore, its main selling point is to bring profits to users through USD0. Now, let’s take a look at how Usual Money is designed. To evaluate a stablecoin project, we usually analyze it from two dimensions: stability and growth potential. Products like USD0 typically exhibit relatively strong growth potential, while their stability may be slightly weaker.

First, in terms of stability, USD0 adopts a relatively mainstream design of 100% reserves, rather than an over-collateralization mechanism. Similar examples include Fei, the current version of FRAX, Grypscope, and so on. In simple terms, you pay a sum of money to mint an equivalent stablecoin from the protocol, and your funds will be held as 100% reserves for the newly issued stablecoin, serving as a value support for the stablecoin. The mechanism chosen by USD0 makes some selections regarding the types of acceptable reserves, opting to use a basket of RWA assets as the reserves for USD0, where RWA assets specifically refer to short-term U.S. Treasury bonds and overnight reverse repurchase agreements. At the current early stage, USD0 has only one type of reserve, which is USYC issued by Hashnote, a RWA on-chain asset that meets the above requirements. Users can choose to use USYC to mint USD0 at Usual Money, and of course, USDC can also be used, but it will be exchanged for USYC by an agent.

This has two benefits:

• It brings a real source of profit to the protocol while ensuring extremely low risk;
• By aggregating, bring liquidity to the still early-stage RWA assets.

The first point is that most similar projects are quite similar. Even projects like USDT and USDC operate this way. Therefore, the core innovation of Usual Money lies in how the earnings are distributed, which is the essence of its mechanism. USD0++, in simple terms, is a tradable bond with a four-year term at USD0. It is important to note that holding USD0 does not generate any earnings; only by exchanging USD0 for USD0++ that requires a 4-year lock-up for redemption can one capture the earnings. This is similar to the design of Ethena. Of course, during the term, users can sell USD0++ in the Secondary Market to obtain liquidity by discounting in advance.

It is worth noting that the sources of income for USD0++ and the method of income distribution. First, it must be emphasized that the income from USD0++ corresponds only to the RWA income associated with the assets you contribute, rather than being divided according to the total income generated from all reserves. Secondly, regarding the method of income distribution, Usual Money offers two options. One, you can hold USD0++, and the rewards will be distributed in the form of Usual Tokens, which is consistent with the current average yield of RWA. The second option is to choose to lock it for 6 months, after which you can choose to receive all tokens in the form of USD0 or Usual Tokens. However, if you unlock it during the locking period, you will not be able to obtain the income generated during the locking period.

For example, let’s say the average APY of Usual Money’s reserves is 4.5%. You purchased 100 USD of USD0 and converted it into USD0++. At this point, you have two choices:

• If you hold without moving, you can earn a daily reward of $0.0123 (100 * 4.5% / 365) in Usual Token. Of course, if you join the Usual appreciation, your earnings may be amplified, and conversely, they may shrink. This is what is referred to as the so-called USD0++ Alpha Yield.
• You can choose to lock it for 6 months, assuming the average APY remains unchanged at 4.5% during this period. After the 6-month period, you can choose to receive USD 2.214, or Usual Token worth USD 2.214. This avoids the risk of reduced returns due to fluctuations in the Usual price during the holding period. This is referred to as Base Interest Guarantee (BIG).

This means that only the returns from the RWA assets corresponding to USD0++ that are within the 6-month lock-up period may actually be distributed, and the expected yield will only be at the average level of RWA. Apart from this, the returns from the remaining RWA assets will be reserved and managed by the protocol as a value support for Usual token. Of course, how this portion of assets will specifically connect with Usual token will require more mechanism details to be announced before it can be known, but it is likely to be through a buyback or similar method.

The Interests of All Parties in Usual Money and Why It Is Said to Be a Liquidity Honeypot Designed for Retail Investors

After understanding the mechanism design of Usual Money, let’s analyze the stakeholders involved in Usual Money and their respective interests. We can roughly divide them into six roles: VC or investors, RWA issuers, KOLs, Whales, project parties, and retail investors;

Firstly, for VCs or investors, their core interest point is the value of Usual Token. We see that the investment institutions and fundraising scale of Usual Money are quite good. This also reflects the confidence in the entire mechanism design to ensure the support for Usual Token’s value. It can be estimated that this project has a strong ability to mobilize the enthusiasm of VCs or Usual investors. By leveraging senior endorsements to encourage more people to participate in the USD0 protocol, or even directly locking it as USD++, will greatly help the price stability of Usual Money. Therefore, you will find it relatively easy to see supportive voices from relevant individuals on social media.

Secondly, regarding RWA issuers, as we know from previous introductions, Usual Money is a good liquidity solution for RWA issuers. Frankly speaking, the adoption rate of RWA Tokens in the current market is not high, primarily because the yield of real-world assets is often lower than that in the Web3 space, which diminishes their attractiveness to capital in the crypto world. However, after integrating Usual Money, users shift their focus from RWA to potential Alpha returns, which causes the capital attracted from users to be seamlessly and imperceptibly converted into the corresponding RWA, thereby indirectly creating demand and liquidity for RWA, making them willing to support it.

Next is the KOL, where we need to see whether the KOL has a buyer’s mindset or a seller’s mindset. This is because in the current Usual Money points activity, with the design of commission from invitations, if the KOL hopes to gain this part of the benefits, they will certainly attach their own invitation code after a round of endorsements.

For whale users, typically due to their capital advantages, they will control a considerable portion of the Usual token incentives, especially considering that the tokenomics design of Usual seems to allocate a large proportion to the community, accounting for 90%. Through the analysis above, we know that due to the USD0++ term of 4 years, this means that participants will be relatively susceptible to significant fluctuation risks in the discount rate. However, for whales, they can leverage an interesting design in Usual Money to circumvent this issue, the Parity Arbitrage Right (PAR). In simple terms, when USD0++ experiences significant deviation in the secondary market, the DAO may deem it necessary to unlock a portion of USD0++ in advance to restore liquidity in the secondary market. Naturally, in this process, whales have a significant say, and when they consider it necessary to act ahead of time, they can easily use this clause to drop the discount rate or reduce trading slippage.

The above mechanism is equally important for the project party, as this process of restoring liquidity is essentially equivalent to Arbitrage trading, and the Interest generated from this portion of transactions will be managed by the project treasury. Therefore, maintaining a certain discount rate can bring profits to the project party, which corresponds precisely to the exit cost for retail investors.

In the end, for retail investors, they are the only disadvantaged and passive party in this protocol. First, if you choose to participate in USD0++, it will mean a lock-up period of 4 years. We know that in the bond market, longer maturities usually come with larger risk premiums; however, the potential yield of USD0++ is only at the level of short-term U.S. Treasury bonds. This means that you are taking on more risk while receiving the lowest returns. Additionally, when retail investors exit, they will not have the advantages that Whale users have in DAO governance, which definitely means they need to bear a relatively large discount rate cost. Since these costs are an important source of revenue for the project party, it is unlikely that they will receive favorable treatment from the project party.

Especially considering that the Federal Reserve has entered a rate-cutting cycle in the future, facing increasingly lower yields, the capital efficiency of retail investors participating in USD0++ will be further compressed. At the same time, since rate cuts mean that bond prices will also rise, the appreciation yield of RWA will serve as nourishment for the appreciation of Usual, which retail investors also will not benefit from. Therefore, I believe this is a beautifully crafted liquidity honeypot woven by many elites for retail investors. Everyone should participate with a cautious attitude. Perhaps for small capital users, appropriately allocating some Usual may be more cost-effective than earning USD0++.