Waves Stablecoin Crash Sparks Death Spiral Fears

Waves Stablecoin Crash Sparks Death Spiral Fears

After almost doubling its market capitalization in a few weeks, Waves’ Neutrino USD stablecoin has lost its peg, signaling a potential “death spiral” event for the ecosystem’s native token.

Neutrino USD Depeg Spells Trouble for Waves

Neutrino USD, the flagship stablecoin of the Waves ecosystem, is seeing its peg challenged amid short selling pressure on the ecosystem’s native token, WAVES. Neutrino USD (ticker: USDN) is meant to roughly follow the price of the U.S. dollar, but it’s currently worth around $0.86. 

USDN lost its desired $1 peg last Friday after a scathing post by the pseudonymous crypto investor 0xHamZ began making rounds on Twitter. 0xHamZ called WAVES, the native token of the Waves network, the “biggest ponzi in crypto,” and claimed that the project’s founders had been artificially pumping the token’s value using leverage.

The idea behind the proposal is to liquidate Alameda’s supposed short position and protect Waves’ long position by capping the borrowing rates for USDC and USDT. Setting higher borrow rates would mean that the team would have to make higher interest payments on its stablecoin loans, which it uses to support the price of WAVES.

The Waves team allegedly controls around 30% of the circulating supply of VIRES, meaning that it could heavily influence—if not singlehandedly decide—the outcome of the vote. However, if Ivanov’s proposal gets rejected, it could force the Waves team to unwind its leveraged long position on the Vires money market platform to service their debt. Following 0xHamZ’s warning post on Friday, the borrow APRs for the USDC and USDT pools on Vires jumped from around 34% to 80%, effectively more than doubling the interest Waves must pay on its loan, which is reportedly worth north of $400 million at press time. 

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies.

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