Wave Breaker

Market Meditations | April 5, 2022

The sea is calm before the storm, and perhaps WAVES founder Sasha Ivanov wishes things had stayed that way. Over the last 36 hours the native token has dropped 25% and it’s stablecoin USDN has de-pegged from the dollar. What’s going on?

  • Waves is a layer 1 blockchain protocol and development toolset that lets people build smart contracts and dApps without the need for extensive programming.
  • Launched in 2016 it has an algorithmic stablecoin (USDN) that is overcollateralised by WAVES tokens. If WAVES drops in price, the “contract issues special tokens that users can buy at a price below $1 and later redeem for USDN at a 1:1 ratio”.
  • On Sunday, Ivanov accused Alameda of price manipulation, suggesting they had pushed the price up on FTX before borrowing WAVES to short and creating FUD to trigger a drop.
  • He has also backed a community proposal to temporarily reduce the liquidation rate to 0.1% meaning anyone currently shorting WAVES would have to unwind their positions immediately to avoid loss of funds.
  • Co-CEO of Alameda suggested looking at funding rates might reveal the truth, whereas Sam Bankman Fried responded in his own colourful way.
  • People continued to withdraw liquidity from Vires Finance, causing a drop in token value and a massive de-pegging of USDN from the dollar.

So is it manipulation, bad luck or playing dirty behind the scenes? Whatever it is, make sure you understand how algorithmic stablecoins work and what can cause them to untether.