Waves Unveils its Revival Plan for the Waves DeFi Sector

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Only two weeks ago, the Ter­ra-based sta­ble­coin UST got de-pegged from the US dol­lar due to a mas­sive sell­out, and the event result­ed in the crash of the sta­ble­coin, Terra’s native coin, LUNA; and even the entire Ter­ra blockchain, whose projects are cur­rent­ly in the process of migrat­ing to Poly­gon (MATIC).

How­ev­er, a lit­tle over one month before the crash of Ter­ra, anoth­er pro­to­col expe­ri­enced a very sim­i­lar and quite cat­a­stroph­ic event. This was the crash of the USDN sta­ble­coin run­ning on the Waves net­work, which also dev­as­tat­ed the project and its economy.

What happened to Waves?

On April 2nd of this year, The Neu­tri­no Pro­to­col Sta­ble­coin (USDN) de-pegged from the USD. The rea­son behind it was a mas­sive and aggres­sive sell­out in the USDN liq­uid­i­ty pool on Curve finance. How­ev­er, while de-peg­ging brought extreme­ly dif­fi­cult times to the project, this was only the start of its prob­lems. Imme­di­ate­ly after that, anoth­er project called Vires Finance — Waves’ lend­ing pro­to­col — expe­ri­enced a liq­uid­i­ty crisis.

Lenders got wor­ried that the coin’s price will crash and that they will lose the val­ue of their mon­ey, so they start­ed to mas­sive­ly with­draw their posi­tions from the pro­to­col. Nei­ther of the two sit­u­a­tions has been resolved as of yet, even though USDN man­aged to near­ly estab­lish its peg on two sep­a­rate occasions.

Now, how­ev­er, Waves came out with a lengthy plan to restore life to its project, as well as DeFi pro­to­cols that run with­in its ecosystem.

Waves recovery

In order to recov­er, Waves’ team had to come up with a 3‑step plan. The first step is to iden­ti­fy what issues led the project to its cur­rent state. The sec­ond step is fix­ing said issues, and the third step is the plan to bring Waves back from the brink.

The first and biggest prob­lem that the project has is fix­ing the peg. The de-peg is what caused every­thing else, and with­out its sta­ble­coin being worth $1 per coin, the rest of the plan will sim­ply not work. Out of a vari­ety of solu­tions, the project decid­ed to do this by defin­ing max swap amount para­me­ters. This changed the swap para­me­ters to make arbi­trage of USDN back to peg more accessible.

Next was solv­ing the liq­uid­i­ty cri­sis, which can be done by set­ting the WAVES/USDN/EURN liq­ui­da­tion thresh­old to 1, while the max bor­row APR for all assets will be 400. What this means is that bor­row­ers have to return 99.98% of the loan to avoid their posi­tions being liq­ui­dat­ed. The project also decid­ed to set dai­ly with­draw­al lim­its for USDT and USDC, and add adap­tive bor­row and with­draw­al lim­its for the lend­ing mar­kets of Vires.Finance.

Final­ly, it found a solu­tion by intro­duc­ing a liq­uid­i­ty posi­tion lock to gain a larg­er share of VIRES tokens rewards.

The plan for the future

With the peg restored and the mech­a­nisms involv­ing the project once again becom­ing reli­able, the project’s next phase is to restore the project to great­ness. There are four steps to take in this phase, which include buy­ing and lock­ing CRV tokens with 45% of the WAVES stak­ing prof­its from Neu­tri­no, and vote to incen­tivize the USDN 3‑pool. This will improve USDN demand.

Next, the project will liq­ui­date large accounts and take con­trol over their col­lat­er­al. The col­lat­er­al will then be sold with­out de-peg­ging USDN, in order to return liq­uid­i­ty to Vires Finance and take down the uti­liza­tion rate, which will allow larg­er user with­drawals. Final­ly, the Neu­tri­no archi­tec­ture would be improved with a new recap token, that recap­i­tal­izes Neu­tri­no with Waves Tokens when under-collateralized.

To learn more vis­it our Invest­ing in Waves guide.

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