Macauley Peterson

<div id="highlights-block_624b4749c21c1" class="highlights">
 <ul>
 <li>USDN has been trading below $1 since Friday, April 1</li>
 <li>The TVL of the Waves DeFi ecosystem has dropped by $1.3 billion, more than 27%</li>
 </ul>
 
</div>



An emerging stablecoin with a recent market cap approaching $1 billion has diverged dangerously from its US dollar peg — calling its very existence into question.&nbsp;



USDN, the stablecoin of the Waves blockchain ecosystem, is supposed to be worth $1, but as of Monday at 5:15 pm ET, it traded for <a href="https://www.coingecko.com/en/coins/neutrino-usd" target="_blank" rel="noreferrer noopener">just 81 cents</a>.



USDN, or Neutrino USD, is considered an algorithmic stablecoin because its supply can expand and contract by burning or minting WAVES, the native token of the proof-of-stake Waves protocol.



WAVES was on an absolute tear as recently as Thursday, when it was trading up 600% in a little over a month. But now, smashed by USDN’s woes, WAVES is crashing down.


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#681FB2&#8243; assets=&#8221;WAVES-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]



Most of the economic activity and total value locked (TVL) in the Waves ecosystem is linked to the use of USDN.



The ability of <a href="https://docs.neutrino.at/" target="_blank" rel="noreferrer noopener">the Neutrino protocol</a> to issue USDN is related to the price of WAVES, because USDN is backed in kind by staked WAVES tokens. The price also impacts the yield users earn on USDN in the <a href="https://vires.finance/" target="_blank" rel="noreferrer noopener">Vires Finance</a> dApp, Waves’ money market protocol — similar to Compound or Aave on Ethereum. As WAVES increases in value, so does interest earned by depositors.



But last week, a pseudonymous DeFi analyst, going by the username 0xHamz, alleged that Waves was using the USDN minting process, combined with Vires, to artificially inflate both the price of WAVES and the supply of USDN.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I will walk you through how the WAVES team is folding leverage to engineering a massive supply squeeze Here is the flow -Deposit USDN on Vires -Borrow USDC on Vires -Transfer USDC to Binance -Buy WAVES with USDC -Convert WAVES to USDN -Start over This is trackable onchain&mdash; 0xHamZ (@0xHamz) <a href="https://twitter.com/0xHamz/status/1509581316689383425?ref_src=twsrc%5Etfw">March 31, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>Crypto pseudonyms commonly begin with 0x — the first two characters of all Ethereum addresses</figcaption></figure>



Citing <a href="https://twitter.com/0xHamz/status/1509596635923427332" target="_blank" rel="noreferrer noopener">on-chain data</a>, 0xHamz outlined a pattern of depositing USDN as collateral to borrow other stablecoins, which were transferred to Ethereum and then to the Binance exchange, followed by commensurate withdrawals of WAVES, which go toward minting additional USDN.



A blockchain’s value tends to grow with increased usage, but as 0xHamz pointed out, transactions on Waves have been stagnant or declining since its 2019 peak.



<div class="wp-block-image"><figure class="aligncenter"><img decoding="async" src="https://lh5.googleusercontent.com/Z8j2PZ2KQGu26PbpqwUYExjiO26EK3RvwPNELtsCX-wuhiTbTWFm-gIm-nCciUPYmllntbfrILqcCmyhUpQacnhxjaUzxyV0GzclO82ah_j1l6PXycpDCL5yPEdURFZfLGtD_uWD" alt=""/><figcaption>Total weekly transactions on the Waves platform, with 2019 peak selected | Source: <a href="https://vis.pywaves.org/transactions/" target="_blank" rel="noreferrer noopener">vis.pywaves.org</a></figcaption></figure></div>



Wave’s TVL is almost entirely attributable to Neutrino — a reflection of staked WAVES — and Vires Finance, according to <a href="https://defillama.com/chain/Waves">DeFi Llama data</a>.



A recent “<a href="https://wavestech.notion.site/wavestech/Waves-is-Transforming-1-2-c57b90770e314a5cb3ee6d1d1e6710af">transformation plan</a>” notes that 80% of WAVES are deployed in staking. The roadmap calls for upgrading the blockchain consensus mechanism and adding compatibility with the Ethereum Virtual Machine (EVM).



Waves Founder and Lead Developer Sasha Ivanov is moving to an advisory role with development responsibility shifting to a new US company, Waves Labs, the company said.



Ivanov blamed Alameda Research, alleging price manipulation to profit from a short position in a <a href="https://twitter.com/sasha35625/status/1510589946926673920">Twitter thread on Sunday</a>, a claim Alameda founder Sam Bankman-Fried <a href="https://twitter.com/SBF_FTX/status/1510685533705547783">dismissed</a> as a “conspiracy theory.”



A spokesperson for Waves Labs did not respond to a request for comment.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Waves Labs

Newsletter

Blockworks Research