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Executive Summary

Background

• Market & financial strength: Usual is a top-earning protocol in its vertical with ≈ $650 M TVL, $25 M annual revenue, and a $25 M treasury.

• Valuation gap: Despite generating ∼20% of Circle's net income, USUAL trades at ∼0.1% of Circle's market cap.

• Innovation & insight: Usual was among the first protocol to stream real income on-chain to token holders; a six-month “open distribution” pilot (more than $15M distributed) proved that distribution alone don’t align incentives with long-term value creation.

Objective

Restructure Usual’s tokenomics to align long-term incentives by linking rewards to actual protocol revenue and commitment. We will:

1. Launch a USD0-funded USUAL buy-back program that removes tokens from circulation.

2. Introduce a tiered USUALx locking mechanism (1 / 3 / 6 / 12 months) with escalating revenue-share multipliers.

3. Phase down the “Gamma” emission rate, lowering token issuance inflation.

4. Add safeguards against delta-neutral farming to preserve genuine staking demand.

5. Route income to holders via treasury accrual, scheduled buy-backs, and lock-based USD0 distributions.

Key Mechanisms

• USUAL Buy-backs

  • 70 % of protocol revenue (USD0) funds open-market buy-backs and treasury accrual.

  • Manual execution at first; transition to automated smart-contract buy-backs once proven.

  • Purchased tokens move to the ecosystem reserve, reducing float and supporting price.

• USUALx Locking & Revenue Share

  • Fixed lock terms: 1 / 3 / 6 / 12 months.

  • APR boosts: 1× / 2× / 4× / 8× proportional to lock length.

  • Only locked USUALx earns USD0 revenue; unlocked USUALx receives base USUAL emissions only.

• Emission Reform (“Gamma” Reduction)

  • Gradual dial-down of the USUAL emission rate (“Airdrop Catch-up”).

  • Smoothly retires high-emission subsidies as revenue-backed rewards take precedence.

• Expected Impact

  • Holders gain USD0 cash-flow, boosted yields, and stronger governance power, all funded by real income.

  • Market value gains a fundamental backstop from revenue-driven buy-backs.

  • Community sentiment is addressed: ~90 % favor locking, ~76 % support buy-backs, ~67 % want limits on delta-neutral farming.

  • Positions Usual for sustainable, fundamentally driven growth while preserving its core concept of on-chain revenue sharing.

Observations

Undervalued Token vs Fundamentals – USUAL’s current tokenomics rely heavily on inflationary rewards, which has led to a disconnect between the token’s price and the protocol’s growing fundamentals. The Usual protocol generates real revenue from USD0 (interest on collateral and fees), yet historically this value was either fully redistributed as yield or retained passively, and the USUAL token price has not reflected the platform’s success. According to the Usual whitepaper, the design intent is to give users both yield and ownership in the growth of the system. In practice, however, continuous token emissions have created sell-pressure, and opportunistic actors have exploited the system (e.g. shorting the token while farming yields), contributing to persistent undervaluation.

With USUAL trading at levels that imply an excessively high dividend yield, it’s clear the market isn’t pricing in the protocol’s robust revenue (i.e., USUAL is undervalued relative to its cash flows). This proposal addresses that by directly tying token demand to revenue via buybacks, thereby aiming to close the value gap (similar to how a company might repurchase stock when it’s trading below intrinsic value).

Misaligned Yield Incentives – The current emission-based reward model, while kickstarting participation, has downsides: it rewards short-term farming and dilution over long-term holding. Nearly 100% of protocol revenues were being redistributed to USUALx stakers directly via USD0 and additional USUAL tokens, with no mechanism to differentiate committed believers from yield-harvesters. Community feedback echoes this concern: many users prefer slightly lower, sustainable yields that grow the token’s value floor, rather than sky-high APRs that come at the cost of heavy inflation. In our recent survey, “boost rewards for long-term holders” and “reduce yield to increase token value via buybacks” ranked as top priorities among respondents (each cited by a large majority) – indicating strong support to pivot the model toward quality of rewards over quantity.

Lack of Commitment Mechanism – Without a lock-up requirement, participants can freely stake to earn rewards and withdraw or sell at any time. This flexibility, while user-friendly, has allowed strategies that undermine the token’s value. Notably, some users engaged in a delta-neutral farming strategy: they would stake USUAL to earn USD0 dividends and simultaneously short USUAL (e.g. on a lending protocol), using the risk-free USD0 payouts to cover the short interest. This strategy yields profit with little or no net exposure to USUAL’s price, effectively extracting value from the protocol while contributing to downward price pressure. Such behavior penalizes loyal holders (who do not short) and sends negative signals about USUAL’s price stability. There is clear community consensus that this is undesirable – about 67% of polled community members supported introducing measures to curb these hedge-farming tactics. A locking mechanism addresses this by forcing a time commitment: one cannot simultaneously lock USUALx for revenue and maintain a completely liquid short position without significant risk. In short, the protocol should reward those who are “in it for the long haul”, and introduce friction or penalties for those looking to game the system.

Community Wants Change – Usual’s core vision is to “put an end to the privatization of profits” in stablecoins and share value with the community. The community has voiced strong support for features that realize this vision in a sustainable way: 90% of surveyed participants favored a model where USUAL holders lock their tokens in exchange for a share of revenue (indicating trust in a vesting-style mechanism), and 76% were in favor of using protocol revenues to buy back USUAL (seeing it as a means to bolster token value and confidence). Additionally, feedback highlighted the desire for balanced, fair value flow: long-term contributors should get a larger portion of rewards (and governance influence), and the protocol should reinvest earnings to grow the ecosystem (which buybacks achieve by investing in the token itself). The proposed reforms are rooted in these community preferences. By requiring locks for full rewards, we align user incentives with the protocol’s success horizon – similar to proven models like vote-escrowed tokens (veTokenomics) used in other DeFi projects, but tailored to Usual’s needs (with multiple fixed terms rather than a single long lock). This creates an economy where those who commit capital for longer benefit more, which is both intuitively fair and financially prudent for the protocol’s longevity.

In summary, the motivation for UIP-9 is to transition Usual from a high-emission, short-term incentivization model to a revenue-driven, long-term value model. By doing so, we aim to correct the current undervaluation of USUAL (through buybacks and stronger holder incentives), ensure that token emissions are supported by actual growth (by tying rewards to revenue and trimming inflation), and encourage a community of stakeholders whose interests are truly aligned with the protocol’s success. The end result should be a more resilient USUAL token with sustainable yield, enhanced utility, and a valuation grounded in fundamentals.

Specification

1. USUALx Locking Mechanism & Boosted Rewards

A new locking feature will be added to USUALx (the staking module for USUAL) to introduce time-based reward boosts and gated revenue sharing:

• Lock Durations: Users will have the option to lock their staked USUAL (USUALx) for four possible durations: 1 month, 3 months, 6 months, or 12 months. Each lock creates a commitment that cannot be broken until the chosen term expires (no early withdrawal). Upon locking, the system will record the amount and lock expiry timestamp for that position.

• Boost Factors: Each lock term grants a predetermined boost factor to the staker’s rewards. Specifically: 1-month = 1× (no boost), 3-months = 2×, 6-months = 4×, 12-months = 8× . These factors multiply the effective USUALx balance of the user for the purpose of revenue distribution [precision: staking rewards are not affected]. For example, locking 100 USUALx for 12 months yields an “effective stake” of 800 units in reward calculations, whereas 100 USUALx locked for 1 month counts as 100 units. Longer locks thus produce higher APRs – up to eight times the base rate in the 12-month case – as an incentive for deeper commitment. (See Rationale for mathematical details on how boosts affect APR and pool share.)

• Revenue Distribution Eligibility: Crucially, only locked USUALx will be eligible to receive protocol revenue (USD0) dividends. If a user chooses not to lock their USUALx (or once a lock expires and if they don’t re-lock), that USUALx is considered unlocked and will not receive USD0 revenue share. Unlocked stakers will still receive base USUAL emissions (if any ongoing rewards are allocated) but no portion of USD0 yield. This creates a two-tier system: Locked USUALx (earning USD0 + USUAL) vs Unlocked USUALx (earning solely USUAL). It effectively shifts the current USD0 reward flow to be exclusive to committed stakers.

• Implementation of Rewards Calculation: The distribution of USD0 to locked stakers in each period (e.g. weekly) will be weighted by both the amount of USUALx locked and the boost factor of each lock. For each user i, their share of the USD0 rewards is:

  

  where B_i is the boost factor corresponding to user i’s lock term. In essence, a 12-month lock (Boost 8) gives eight times the weight of a 1-month lock (Boost 1) per token in the distribution formula. This boost-weighted model will be implemented in the USUALx yield smart contract (or a supporting distributor contract) to ensure revenue is apportioned according to these rules. The boost values are fixed as above for now, but can be adjusted by governance for future cycles if needed (with the constraint that changes wouldn’t retroactively affect existing locked positions).

• Lock Expiry and Renewal: When a lock duration ends (maturity reached), the user’s USUALx becomes unlocked (available for withdrawal or relocking). The system will automatically recognize the unlock and stop applying the boost to that position after its term. No rewards are earned on expired/unlocked USUALx – if a user wants to continue earning USD0 revenue, they must actively re-lock their tokens into a new term. This encourages continuous engagement and prevents set-and-forget farming. Users can choose different lock durations for new locks at each renewal. The dApp interface will provide a “Lock” action for stakers, show their active lock positions (amount, remaining time, boost), and indicate the current aggregate boosts and APY they’re receiving.

• USUAL(Vested Token) Handling: Holders of USUAL* (the special vested allocation for early backers) will be accommodated in the new system. Until the scheduled November 2025 cliff, all USUALx derived from USUAL* stakes will be treated as if locked for 6 months, automatically receiving the 4× boost on any USD0 rewards . This ensures early supporters are not disadvantaged prior to their tokens unlocking. After the cliff date (when USUAL* can be converted to regular USUAL), those users will need to lock their tokens like everyone else to continue receiving boosted rewards.

2. Revenue-Based Buyback Program

The protocol will initiate a formal USUAL buyback scheme funded by a significant portion of its ongoing revenue, shifting the economic model from pure emissions to direct value accrual:

• Revenue Allocation Split: 70 % of protocol revenue (USD0) funds open-market buy-backs and treasury accrual. The remaining 30% of revenue will be distributed to locked USUALx holders as described above (this 70/30 split is the initial target and can be tuned by governance as needed). This represents a change from the previous approach of distributing ~100% of revenue to holders; instead, a majority will be reinvested into the token, while a portion still reaches holders as direct yield.

• Buyback Execution: Initially, buybacks will be conducted in a discretionary and transparent manner. For example, the protocol’s USD0 earnings will accrue in a treasury address, and at set intervals (e.g. weekly or when a threshold is met), the team will execute market purchases of USUAL using 70% of those funds. The specifics (timing, method, trading venue) will be optimized to minimize price impact and avoid frontrunning – likely through a mix of DEX orders or auctions. All buyback transactions and amounts will be announced or visible on-chain for accountability.

• Transparency and Monitoring: A dashboard will be provided (or on-chain data easily verifiable) showing the amount of revenue collected, USUAL buybacks executed, and the cumulative impact on supply. This aligns with the community’s desire for clear reporting of revenue allocations. Success metrics like “% of revenue successfully used for buybacks” will be tracked to ensure the program is functioning as intended.

• Use of Repurchased Tokens: USUAL tokens bought back from the market will be sent to a governance-controlled address. The default plan is to stake these tokens without locking them. These tokens will not be eligible for USD0 revenue. However, the DAO may alternatively vote to retain some repurchased tokens in the treasury for strategic uses (such as future yield programs, insurance fund, etc.) or burn them—permanently reducing the circulating supply and thereby increasing each remaining token's share of the network (analogous to a stock buyback's effect on EPS). Burning vs. holding can be decided via governance; in either case, the key point is that value is returned to token holders—either indirectly by deflation (if burned) or by bolstering the treasury (if held).

• Automation via Smart Contracts: The mid-term plan is to integrate an automated buyback module into the protocol’s smart contracts or a governance-controlled bot. This could involve a smart contract that continuously or periodically swaps a portion of collected USD0 (or interest-yielding USD0++) for USUAL according to predefined parameters (e.g. a target price range or a time-weighted average). By automating, the process becomes more consistent and trust-minimized. However, automation will only be deployed after careful design and audit, to ensure it doesn’t introduce vulnerabilities. Until then, manual execution under community oversight will be the approach.

3. Emission Reduction & Gamma Phase-Out

To complement the new revenue-sharing model, the protocol’s native token emission schedule will be calibrated down to reduce excess supply:

• Gamma (γ) Parameter Adjustment: In Usual's tokenomics, the scale factor γt is a governance-set parameter that can globally adjust USUAL's minting rate. Currently, emissions are set to distribute a certain amount of USUAL daily, with γ typically at 1 (neutral) or possibly >1 or <1 if previously tweaked. Under this proposal, the DAO will incrementally converge the γ factor to 1. Essentially, we will start minting fewer USUAL tokens for USUAL* and USUALx.

• Phased Reduction Schedule: The reduction in emissions will be executed in phases to avoid a shock to the ecosystem (we do not simply lower rewards overnight, especially considering many early users and liquidity miners have been factoring emissions into their strategy). We will monitor market conditions and protocol growth during this phase-out to ensure we maintain competitive yields for stakers (especially those locking) without overshooting and causing unnecessary scarcity too fast.

• Airdrop & Early Staker Considerations: The current Gamma parameter configuration was driven by the desire to compensate for the initial airdrop during the first months following the TGE. Now this compensation has been effective and it is appropriate to reduce the emission of USUAL for USUAL* and USUALx in accordance with what was indicated in the whitepaper (part 5.4.1). [Precision: This doesn’t affect USD0++ distribution]

By combining the above three components, this proposal comprehensively restructures how value flows in the Usual protocol: from one where rewards were predominantly inflationary and immediately extractable to one where rewards are substantially backed by real revenue and accrue to those who invest time and conviction. The technical implementation details are outlined below.

Expected Outcomes

The following outlines the expected outcomes of each proposed protocol change:

Token Value Supported by Revenue - Using protocol revenue to support USUAL’s price (via buybacks) directly addresses the core issue of undervaluation. When a protocol consistently earns income (e.g. from RWA yields backing USD0) and uses that to purchase its own token, it establishes a fundamental price-support mechanism. This is analogous to a dividend or stock buyback in traditional finance – both signal that the asset is undervalued and return value to holders. In Usual’s case, our revenue was already being generated; the missing link was directing that value back into USUAL’s market. The whitepaper’s vision noted that rather than paying out all yield as cash, retaining value in the system can enhance the intrinsic worth of $USUAL. Our approach of 70% buybacks + 30% dividends strikes a balance: it retains most value internally (buying/burning tokens boosts intrinsic value) while still sharing some cash flow with token holders to provide tangible yield. This should over time correct USUAL’s price-to-earnings ratio to a healthier level – if USUAL trades too low, the protocol is essentially buying revenue at a bargain, benefiting loyal holders. Furthermore, reducing continuous sell pressure by replacing part of the USUAL emissions with buybacks means the circulating supply growth slows and demand increases, a double effect that should positively influence price. A stronger token price, in turn, increases confidence and makes the ecosystem more attractive to new users, creating a virtuous cycle of growth.

Long-Term Locking & Boosts - Introducing time-locked staking aligns incentives by rewarding patience and belief in the project. The boost factors (up to 8× for 1-year locks) are purposefully aggressive to encourage maximum participation in governance and long-term alignment. We chose a multiplicative boost model (as opposed to linear or smaller boosts) to ensure the reward difference is meaningful while staying reasonable with a max lock of 12 months, lower than Curve veCRV and aligned with the survey. This design is inspired by the success of vote-escrow models, where users lock for up to 4 years for boosted rewards and voting power. Our model offers flexibility with multiple terms and simplicity (no complex decay functions), while still capturing the essence: those who lock longer get a larger slice of the pie. Mathematically, as shown earlier, the ratio of APRs between any two lock tiers is directly the ratio of their boosts – e.g., a 12M locker will earn 8× the USD0 APR of a 1M locker given the same conditions. This clear incentive structure lets users self-select based on their conviction. If many people choose the longest lock, it indicates strong community faith (though it will dilute individual APR, that’s a good sign of alignment). If few choose it, those few are heavily rewarded – also fair, as they took on more risk by locking when others wouldn’t. Either outcome is positive: we either demonstrate broad long-term alignment or richly reward the true believers. Additionally, from a governance perspective, locked tokens (especially 12M) can be seen as committed votes for the future of the protocol, likely leading to more thoughtful governance participation by those users.

No More Free Rides: only Believers Get Paid - Prior to this change, any USUAL holder could stake and immediately start receiving USD0 revenue, even if they intended to dump the token or simultaneously short it. This free-rider problem meant that short-term actors could extract value (the USD0 dividends), while possibly contributing to USUAL sell pressure (if they sold their tokens or shorted). By requiring locks, we ensure that only participants who add stability to the ecosystem (by holding their tokens locked) get to enjoy the revenue share. This is fundamentally more fair – it channels the protocol’s benefits to those who are helping maintain its value. In economic terms, it aligns private incentives with public (protocol) health. A user now has a strong reason to hold USUAL long-term: not only do they get more USD0 yield by doing so, but the actions of others doing the same (and the buybacks) support the token’s price, benefiting all holders collectively. It transforms the dynamic from one of short-term extraction to one of long-term partnership between the users and the protocol. The community recognized this; there was overwhelming support to “reward long-term holders” and to establish “fair value flow” where those who stick around see greater benefit. Locking with tiered rewards is a direct answer to that call.

Delivering on Usual’s Core Mission - Ultimately, the rationale ties back to why Usual was created. Usual set out to create a stablecoin ecosystem where value is shared with the community and incentives are aligned. The initial implementation achieved the basic premise of sharing value (through USUAL token distribution and USD0 yield), but the alignment aspect needed refinement. This proposal brings the implementation closer to the mission:

• We redistribute value more intelligently – not just blindly to anyone holding USUAL, but to those who actively support the system’s stability (long-term lockers).

• We ensure the treasury’s growth benefits holders (through buybacks and controlled rewards) without simply giving everything away in an unsustainable manner.

• We maintain a high degree of decentralization and community ownership: 100% of protocol revenue still goes to the community (70% via token buybacks benefiting all holders, 30% via direct payouts to lockers) – this is in line with “redistributing 100% of value to governance token holders” as stated in our docs , but now in a more future-proof way.

In crafting this proposal, we’ve also considered the trade-offs. We acknowledge that introducing locks and reducing emissions may lower the immediate APY numbers and liquidity of USUAL, which could concern some users. However, the survey data and community discussions indicate a willingness to accept this trade-off: people prefer a realistic, lower but dependable yield that doesn’t crash the token’s value, over an extremely high yield that ultimately comes at the token’s expense. The presence of multiple lock durations also offers choice – users uncomfortable with long locks can choose 1 or 3 months (with lower boost) or even not lock at all (foregoing revenue but still getting tokens), meaning participation can be tailored to one’s risk profile. This flexibility was important in our rationale to ensure we don’t alienate more cautious users while still incentivizing the bold ones.

In summary, the rationale behind each element of UIP-9 is to realign the economic incentives of the Usual protocol with long-term value creation and fairness. By enacting these changes, we expect:

• USUAL token value to be better supported (potentially appreciating to reflect its share of protocol revenue, as buybacks and reduced inflation kick in).

• Stakers/holders to be more committed and more richly rewarded in the long term (via higher relative APR for locking and a larger share of a growing revenue pie).

• Short-term and exploitative behaviors to diminish, as they will no longer be lucratively rewarded.

• Protocol revenue growth to directly translate into holder benefits and protocol value (creating a positive feedback loop between usage and token value).

All of these outcomes feed into a healthier, more robust Usual ecosystem, positioning it competitively among DeFi protocols with strong tokenomics. The community’s voice has been clear on pursuing sustainability and alignment, and this proposal is the execution of that mandate, drawing on both internal analysis and successful precedents in the industry.

Implementation

Upon successful approval of UIP-9, the following proposal will be implemented promptly within days of the governance vote confirmation.

Sources

1. Usual Labs – USUALx Locked Revenue Redistribution (June 2025), explaining the shift to a lock-up model.

2. Usual Whitepaper – Section on USUAL tokenomics and distribution model ; rationale for value accrual and emission controls.

3. Usual Docs – “Why Usual?” highlighting profit-sharing philosophy.

4. Usual Tech Docs – USUAL Distribution Model and USUAL Airdrop for definitions of Gamma factor and initial distribution mechanics.

5. Community Survey Results (June 2025) – indicating ~90% support for locking, ~76% for buybacks, ~67% for curbing hedging.

Transparency

Data integrity proof: file with original text

SHA-256 hash of the file: 43365ec89aef0ab73cfdf26a367539c86ce305dfd6619ecfcc3b2d376bfa3c81

Comments in [brackets] were added after publication for additional clarity.