A Guide to Valuing $USUAL* Tokens

In this educational guide, we will delve into the unique characteristics of $USUAL* tokens (in contrast to $USUAL tokens). Additionally, we will discuss a valuation methodology for $USUAL* tokens.

Main Concepts Behind $USUAL*

The $USUAL* tokens are exclusively distributed to insiders, such as investors, team members, or partners. These tokens provide insiders with exposure to the growth of Usual. $USUAL* tokens as a whole have claim to 10% of the $USUAL that are minted. So for all $USUAL minted with new deposits or collateral yield, 10% of these tokens are allocated to $USUAL* holders. $USUAL* has a supply of 360 million tokens; this token supply is static and fixed from the token generation event.

How Valuable is $USUAL*?

Based on the design of $USUAL*, we can understand its value based on how much expected value each token receives from $USUAL tokens $USUAL* has claim to.

Fixed Supply

Unlike $USUAL tokens which are minted with new TVL, $USUAL* is fully minted at the token generation event (considered the inception of the token) with 360 million tokens. As $USUAL* supply is fixed and the $USUAL claim becomes greater, the price of $USUAL* is expected to increase.

$USUAL Claim

Each $USUAL* token has a proportional claim to 10% of all $USUAL minted. However, this $USUAL is not fully liquid to $USUAL* users upon minting the tokens; instead, $USUAL will become liquid such that the liquid tokens maintain a 10% cut of the entire circulating supply of $USUAL. This makes the valuation slightly harder to anticipate but is an important aspect to note.

Protocol Growth

$USUAL*, because of this claim, can be considered a derivative on the growth of the protocol because $USUAL is minted with new TVL deposits and with new collateral yield and, thus, the total $USUAL allocated to $USUAL* is directly related to protocol growth. Therefore, valuation models are built based on the speculated growth through TVL for the protocol; this directly impacts the value of $USUAL*.

Valuation Model $USUAL*

With an understanding of the inherent claim each token has claim to and the supply of $USUAL, we can delve into creating a model that calculates an expected price for $USUAL (based on assumptions set).

Ultimately, this comes down to two separate models with one being more unique to Usual and specifically based on assumptions for protocol growth and the other more traditional in the financial world.

Valuing $USUAL* based on Expected Cash Flow from Selling $USUAL

$USUAL* can be valued based on the expected $USUAL claimed and sold given a speculated TVL in the future. By assuming we are directly selling $USUAL we can anticipate the cash flow from this and use this to create a fair value calculation for $USUAL*.

A couple major parts are required for completing this calculation:

1. Establishing a speculated TVL growth timeline
2. Calculating a discount rate using this growth and the $USUAL PE
3. Accounting for the rate at which $USUAL becomes claimable after being minted
4. Calculating a discounted cash flow fair value for $USUAL*

Each of these parts are used to calculate a fair value market cap of $USUAL* which can be used to calculate a price of $USUAL* based on any set of assumptions for TVL growth and $USUAL PE.

This model has been adapted in the linked spreadsheet.

1. Establishing a speculated TVL growth timeline.

Since the value of $USUAL* is highly correlated to the growth of the protocol, we can understand the value of $USUAL* based on specific assumptions for TVL growth for the protocol. For the model we can model this using a starting TVL, a TVL achieved after 4 years and a TVL growth rate beyond this.

2. Calculating a discount rate using the TVL growth and $USUAL PE

By assuming $USUAL PE is represenatative of the speculation for $USUAL*, we can estimate the perpetual growth of TVL (using the assumptions for speculated TVL) to calculate a discount rate that will be used for valuing $USUAL*.

It should be noted another discount rate could be used but by assuming the $USUAL PE is representative of speculation for $USUAL* as well we can come to this conclusion for the discount rate we used.

3. Accounting for the rate at which $USUAL becomes claimable after being minted

$USUAL is not fully distributed to $USUAL* users as its minted, $USUAL* claim 10% of $USUAL that is circulating. In the model we estimate that as $USUAL is minted it is evenly distributed to $USUAL* users over 8 years.

4. Calculating a discounted cash flow fair value for $USUAL*

Once we have the model assumptions established we can calculate the cash flow from selling $USUAL dispersed to $USUAL* users.

By obtaining this present value, we have a fair value for $USUAL*. This can be further used to compare this fair value with the seed value.

Comparing Seed Value to Fair Value

Based on this model we can calculate a fair value of $USUAL* using the assumed TVL growth metrics. This can be used to compare the fair value of $USUAL* based on these assumptions with the established $USUAL* seed valuation.

For example, if we assume TVL at start is $400 Million (TVL accumulated during the pre-launch phase), TVL after 4 years is $10 Billion, subsequent growth for TVL after 4 years is 10% annual and FDV/TVL of $USUAL is 1.00, the following values are calculated in the model:

By using this model we get a better understanding of the discount of the seed price compared to the fair value we calculate.

Comparing Fair Value using Competitor TVL Assumptions

We can also make fair value calculations by using the TVL assumptions from other competitors. Using these assumptions we can compare the $USUAL* fair value valuation to the seed value as well.

Using competitor assumptions from Tether, Circle, DAI, and Frax (also extrapolating growth using historical growth and a growth decay factor - see Fade Factor in the spreadsheet) we can calculate the expected fair value of $USUAL*. We can further compare it to the seed value either viewing it as a discount (seed discount on the fair value) or as a multiple of fair value over seed.

For this model we assume we achieve the same TVL as the competitors after 4 years.

*Last updated Jan 31. 2024

This gives some perspective as to how valuable $USUAL* can be based on achieving the same metrics as competitors.

Valuing $USUAL* using a Price-to-Earnings Model (or analyzing by Implied PE)

$USUAL has an economic right on DAO revenue we can consider that $USUAL* has an economic right to 10% of all DAO revenue (because it has 10% claim on all $USUAL minted). Based on this, we can calculate an earnings per token (EPT) for $USUAL*.

Using this we can calculate a fair price of $USUAL* by treating it as a traditional financial instrument rather than a derivative on protocol growth (through claiming $USUAL tokens).

While this model is relatively simple, the difficulty is that we do treat $USUAL as if it is claimed and nothing is done with it beyond this claim. The previous model used assumes we treat the right to claiming $USUAL as a sellable token upon claiming. Therefore, with the two models we look at different potential behaviors. To better understand the first model we can also use the expected price calculation from to better understand what the implied PE is based on the speculated TVL. This allows for better comprehension on how high the price of $USUAL* can be to other protocols and financial instruments relative to a PE ratio.

For example, if we assume TVL at start is $400 Million (TVL accumulated during the pre-launch phase), TVL after 4 years is $10 Billion, subsequent growth for TVL after 4 years is 10% annual and FDV/TVL of $USUAL is 1.00, the following values are calculated in the model:

In this example, we see that the PE decreases over time because the expected growth in TVL is decreasing. Prices continue to increase with new $USUAL minted that adds to the value of $USUAL*. Being able to analyze these implied PEs provides better comprehension on the value of $USUAL* over time.

Comparing Implied PE using Competitor TVL Assumptions

Using this implied PE, we can also compare $USUAL* fair value implied PEs based on using the competitors’ metrics as our assumptions for the model.

For example, the following implied PEs are calculated using these assumptions:

*Last updated Jan 31. 2024. This also assumes $400 Million beginning TVL after the pre launch phase.

More on $USUAL* Valuation Models

Below is a $USUAL* valuation spreadsheet with simple parameters to look at potential $USUAL* prices based on TVL inputs and $USUAL valuation inputs. This sheet was used to produce all values used in the above explanation.

Spreadsheet