Waves Unveils its Revival Plan for the Waves DeFi Sector
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.
