After weeks of crazy price action (to the upside!), WAVES is embroiled in some serious fear, uncertainty and doubt (FUD) involving allegations of insider trading, the recent de-pegging of its USDN stablecoin (which now finds itself nearly 10% shy of a dollar), and a controversial proposal to liquidate all people shorting WAVES.
TL;DR:
- Was Alameda Research insider trading?
- WAVES Ponzi scheme thesis.
- USDN depegged.
- Imminent mass liquidation..?
WAVES and USDN 101
A quick overview for anyone who needs to catch up:
The WAVES blockchain was launched in 2016 with ambitions to disrupt decentralized finance (DeFi) thanks to its unique version of smart contracts called Ride, which aims to offer all the functionality of Ethereum but with zero gas.
It was also one of the first platforms to implement community voting for changes to its monetary policy and the creation of new financial instruments. One of which was called Neutrino, and the creation of the algorithmically USD-pegged Neutrino USD (USDN) stablecoin.
In order to preserve its peg, USDN is backed by a WAVES Reserve Fund. If the reserve is not sufficient enough to cover the drop in USDN price, the Ride smart contract issues neutrino system base tokens (NSBT) which can be traded at any price with USDN, before being liquidated at a ratio of 1:1.
Now, let’s take a look at the controversy playing out.
Insider-trading accusations
Following a massive increase in price, short positions started piling up.
Just eighteen hours ago, Sasha, one of the project’s founders, tweeted a thread accusing Alameda Research of shorting WAVES.
Before moving on, it’s worth mentioning that FTX is owned by Alameda Research.
Sam Bankman-Fried has already called the theory ‘bullshit’.
The ‘conspiracy’ began during Sasha’s interview with Muyao Shen at Bloomberg Crypto, when the interviewer offered a theory that WAVES’s price action was somehow connected to the Russian-Ukrainian conflict, citing a transaction on FTX that was made on the eve of the conflict.
The interviewer then asked Sasha if WAVES was behind the trade. If not, did they know anything about it? The answer was a definitive no on both accounts.
As Sasha put it:
“I was dumbfounded by the question, since FTX has a wrapped version of $WAVES (they asked us to pay $1.5 mln for native token integration 🙂 ), and I don’t care for non-native integrations and don’t follow them.”
Sasha attributed WAVES’s growth to its recently launched US company, consistent and organic growth in total value locked (TVL), as well as their new roadmap announcement.
WAVES’s price action continued to rise during the first half of March, whilst TVL climbed further and a new US team was onboarded.
WAVES accused of Ponzinomics
By the third week of March, Crypto Twitter was increasingly criticizing the protocol. One thread that stood out went as far as calling WAVES a Ponzi scheme.
0xHamz called WAVES a Ponzi on account of artificially engineered price spikes attributable to the protocol’s practice of borrowing USDC at 35% annual percentage yield (APY) to buy its own token.
If true, this means that USDN price is being propped up by borrowed money, and with 85% of the supply currently staked due to the high yield offered to stakers, WAVES’s marketcap has to continue growing at a sustained rate in order to keep the system stable. If not, WAVES will crash and USDN goes with it.
0xHamZ then went on to say that:
- WAVES has no traction.
- The price was initially pumped on a Russian ETH narrative.
- The team took advantage of the pump to issue USDN and borrow USDC against it.
- The team has been recklessly pumping WAVES on borrowed money.
Amidst this mounting FUD came some major liquidity withdrawal from lending and borrowing protocol Vires.Finance, which 0xHamZ describes as “the AAVE equivalent on the WAVES protocol. It holds $607mm / $875mm = 70% of all USDN on its platform”.
Sasha started looking into the issue, especially as someone had previously reached out asking to borrow 1 million WAVES, whom Sasha assumed had very specific intentions: “Obviously to short”.
Waves never sell or lend WAVES, so Sasha searched on Vires to see if someone (or some entity) was borrowing WAVES there, only to find an account that had begun borrowing large amounts on March 20, subsequently sending it to Binance, selling it, and in turn, causing the price to drop.
Crucially, this activity started around the same time as the Twitter-wide FUD campaign.
Here are the account details:
- email: info@alameda-research.com (verified)
- address: 3PHkZUJpS3AfmnXBNLCBmpqL25GJZb1hGiE
Sasha theorizes that:
“They [Alameda Research] were the first to push the price on FTX, but after the position was closed with profit, the subsequent short trade they opened failed, because the price kept going up. Borrowing and FUD had to bring the price down and make the short profitable.”
The plot thickens
Short positions have been increasing over the past 12 hours, rising a substantial 20% as the price of WAVES dumped 5%.
The result?
USDN has lost its peg, currently valued at around US$0.90 apiece.
Vires Finance enters the fray (with a crazy proposal)
Vires Finance has now stepped in with an extreme proposal.
Should it pass, everyone basically has to repay every penny of their loan in WAVES, USDN and EURN within seven days, or they will be liquidated in full, right after the execution. This would essentially confiscate all shorters’ collateral.
Crypto Twitter is largely against this proposal… but it could pass nonetheless.
Banter’s take
If the proposal is voted in, it will result in an increase in buying pressure, since all the shorts will have to close their positions and buy back the assets to, in turn, repay their loans. If passed, the proposal could irreparably damage Vires Finance’s credibility.
This could be a buying opportunity, but it is highly, highly risky: If the WAVES price drops sufficiently, the peg could collapse altogether. And with everyone thinking it’s the world’s easiest short, a squeeze to the upside is by no means off the table!
There is a lot to think about here, and the story continues to unfold. We encourage you to read all the mentioned threads, not to open any short or long positions, and keep your eyes peeled for further updates,
