Waves, an issuer of another algorithmic stablecoin Neutrino USD (USDN) has distributed a plan to reanimate its troubled stablecoin.
USDN lost its “peg” back in April tanking to around $0.66 and while it has bounced back a bit – now around $0.97 – USDN has never regained its dollar target.
USDN is far smaller, at around $820 million in market cap, than the top stablecoins (non-algo) like Tether (USDT) and Circle’s USDC, but the questions regarding algorithmic stablecoins that hit the TerraUSD – LUNA ecosystem have plagued USDN as well. Some have questioned the ability of USDN to ever regain its dollar peg.
In a company statement, Waves acknowledged that it had experienced a “string of unfortunate events.” Waves said that it had become nearly impossible to withdraw assets for regular users. But now the company has revealed a “Master Plan” to revive the struggling crypto.
The company stated that Sasha Ivanov, Waves Founder, is proposing – to personally take on the ~$400m worth of debt held by the large borrowers. He can then liquidate part of the accounts balance, return the collateral to the protocol, restore liquidity, and enable larger user withdrawals.
The plan consists of the following steps:
- Step 1. Boosting the demand for USDN by buying and locking CRV tokens with 45% of the WAVES staking profits from Neutrino, and voting to incentivize the USDN 3-pool. Since the de-peg was caused initially by large selling of USDN in the Curve pool, this calls for paying close attention to CRV and acquiring sufficient voting power to distribute rewards and make USDN more attractive to the DeFi market.
- Step 2. Sasha Ivanov, Waves Founder will take on the $400m debt and liquidate the whale accounts’ collateral to return liquidity to Vires via selling USDN.
- Step 3. In order to avoid further depegging from selling large amounts of USDN. The selling will be slow and steadily controlled. Waves is predicting it will take up to 2 months to return Vires Finance to full working order. Meaning total freedom to deposit, withdraw, and borrow from the protocol.
- Step 4. Improving Neutrino architecture by issuing a new recapitalization token to replace NSBT eventually. This new token will be tasked with recapitalizing Neutrino with new Waves tokens when under-collateralized since NSBT fails to do so in current conditions. The recapitalization token holders can earn a reward from 50% WAVES staking rewards in the Neutrino contract.
Waves believes it will take a month or two for the ecosystem to be revitalized.
Ivanov said he firmly believes they have identified the steps to succeed.
“This has been a real stress test for the Waves DeFi ecosystem, and it is incredible to see the support from the Waves community in navigating this crisis successfully.”
In the near term, perhaps the plan will be successful but longer-term things are not as clear. It is expected that stablecoins in the US will be regulated as banks, or a limited banking entity, and thus need to pursue a bank charter. Algorithmic stablecoins have lost their luster with the collapse of TerraUSD (USDT) while heightening the awareness by policymakers and regulators of these erstwhile stablecoins Once the US goes down the path of applying banking laws, you can expect other jurisdictions to follow.