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Part 1 Introduction to Waves
1 Overview
Waves is a layer 1 public chain. The main applications on the chain are stable currency, savings, exchange and foreign exchange. The project vision is to apply the blockchain to financial and pan-financial fields such as securities, crowdfunding, and legal currency transfers, thereby creating a financial public chain.
TVL: about 1.58 billion US dollars, currently ranked 8th in the public chain, with few applications on the chain
The official claims that the TPS can reach 1000+, the block time is about 57 seconds, and the average gas fee is 0.005 WAVES.
2. Technology
The Waves blockchain uses leased proof-of-stake (LPoS) as a consensus algorithm, which allows users to lease their tokens to miners. In return, the node shares part of the block generation revenue (mainly inflation and gas fee) with the lessor.
Different from the PoS mechanism, the larger the amount leased to a full node, the greater the possibility that the selected full node will generate the next block. It can be understood that the degree of centralization of LPoS is relatively high. In the blockchain impossible triangle, security and scalability are chosen, and decentralization is abandoned. The top 2 nodes account for about 80% of the total pledge.
3. Founder
Although Waves is called Russian Ethereum by the market, the founder (Twitter: @sasha35625, 146K fans, very active) after the Russia-Ukraine conflict once stated that he is Ukrainian. Graduated from Moscow State University majoring in theoretical physics, and later engaged in artificial intelligence development and blockchain application development; founded Waves in 2016.
4. Financing
In 2016, ICO in the form of BTC sold a total of 85 million WAVES tokens with a unit price of $0.188 and raised $16 million.
Waves is believed to have no VC funding involved, but according to Pitchbook, it received investment from Ledger.vc in 2019, with an unknown amount. Ledger.vc has a Chinese-funded background and was relatively active before 2020. It has invested in Polkadot’s seed round. GP Ted Cheng was once the director of Waves’ Chinese community.
5. Token economy
The native token, WAVES, is used for on-chain transaction gas fees, governance and block rewards for miners.
The upper limit of the initial supply in 2016 is 100 million pieces, which will be circulated through ICO. In October 2019, a proposal was passed to increase the minimum block reward (currently 6, and the follow-up will be determined by the community).
The current total supply of WAVES is 108 million pieces, the actual inflation rate is about 3%, and the pledge rate (including leasing) reaches 70%.
There are about 720,000 currency-holding addresses, the Top 10 addresses hold about 80 million (80%), Neutrino USDN Collateral smart contracts (47.32 million) and exchange addresses (including suspects, about 25 million). The overall circulation is not high.
6. On-chain projects
Decentralized exchange Waves Exchange: The trading function adopts the basic mode of DEX, the automatic market maker (AMM), but the application integrates the functions of the centralized exchange, including order book, K-line, transaction volume and other data display; Including the DeFo foreign exchange exchange function, the AdvCash payment system can be used to purchase USDN with multiple national currencies.
Lending application Vires Finance: Similar to Aave, it provides decentralized deposits and loans. Depositors deposit assets into the market to obtain interest income, while borrowers can borrow in the form of overcollateralization.
Algorithmic Stablecoin Protocol Neutrino: Use the native token WAVES as 1:1 collateral to exchange algorithmic stablecoins.
The official is promoting the development of Waves 2.0, mainly including EVM compatibility, DAO governance module, Gravity Bridges cross-chain bridge, the establishment of a US company (completed, Waves Labs) as the new headquarters and incubation of US projects.
Source：https://wavestech.notion.site/wavestech/Waves-is-Transforming-1-2-c57b90770e314a5cb3ee6d1d1e6710af
Summarize:
The ecology is relatively closed and centralized, focusing on financial and foreign exchange transactions, and the user interaction experience is better.
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The second part algorithmic stablecoin USDN
1. Mechanism overview
The algorithmic stable currency USDN is issued through the smart contract Neutrino with WAVES as collateral.
USDN can be minted by locking WAVES tokens in a smart contract. For every $1 of WAVES locked, 1 USDN can be minted. In the same way, 1 USDN can also be redeemed for 1 USD WAVES through smart contracts. USDN is maintained near $1 by arbitrage.Overall Mechanism UST
LUNA has a similar, but closer to DAI issuance mechanism. Since USDN is 1:1 pledged, the oracle machine only guarantees the price at the time of exchange. Later, due to the price fluctuation of WAVES, there will be problems of over-collateralization or under-collateralization. Therefore, Neutrino added NSBT similar to bonds to ensure stability.
NSBT is the asset reorganization and governance token in Neutrino. When the USDN reserve is insufficient, NSBT will be issued and auctioned to supplement the reserve and guarantee the value of USDN. NSBT can be purchased interactively through the Neutrino smart contract (primary market, which can only be denominated in WAVES, USDN), and can also be traded in the secondary market of a few exchanges, but the transaction volume is extremely small, and the price is slightly higher than the primary market.
The issuance amount of NSBT (the upper limit is about 2.8M) and the price are determined by the mortgage rate of USDN. The lower the mortgage rate, the lower the primary market price of NSBT. Only when the mortgage rate is greater than 1 will the repurchase be initiated. The higher the mortgage rate, the higher the primary market price.
Stake NSBT to get Neutrino governance token gNSBT:
1) Participate in the casting and arbitrage of USDN, and get different amounts according to the amount of pledge. At this stage, if you pledge 1,000 NSBT (approximately 22,000 USD), you can get an arbitrage opportunity of 3,952 USDN per day.
2) Share the 2% handling fee of USDN minting/arbitrage.
3) Once NSBT is pledged, the unlocking fee decays with the staking time. Taking 1,000 NSBT as an example, only about 110 NSBT will be returned after 1 month of staking, and about 900 NSBT will be returned after 20 months.
Such a mechanism ensures that NSBT will be pledged in large quantities for a long time and become a substantial bond.
The actual USDN reserve should be the market value of WAVES + the market value of NSBT, but the current USDN reserve is insufficient.
2. Comparevs UST
The LUNA mechanism, the increase in demand for stable coins will lead to the rise of native tokens, but there are the following differences:
1) When WAVES is exchanged for USDN, it is locked in a smart contract (similar to DAIs mortgage), not destroyed. The minting and burning of stable coins will not affect the total amount of WAVES.
2) The arbitrage of WAVES to USDN has a daily limit, and NSBT needs to be pledged, and NSBT needs to be purchased with WAVES, that is, the WAVES sold during the arbitrage process will be partially absorbed by users who buy NSBT, and will not cause hyperinflation of WAVES, leading to a sharp drop .
3) If the USDN is severely unanchored (the death spiral starts), due to the strong capital control of NSBT, the circulation will be insufficient. If the secondary market price is lower than the primary market, it will cause arbitrageurs to buy NSBT and pledge it for USDN arbitrage. The price of NSBT will be relatively stable.
It can be understood that WAVES will not have a death spiral as simple and crude as LUNA. In the process of USDN unanchoring and back anchoring:
1) When NSBT has not been issued, the price of WAVES may remain volatile;
3) If the final market value of WAVES is insufficient for a long time, the mortgage rate cannot rise to allow the agreement to repurchase NSBT at a high price in the primary market (that is, bond default), when a large number of NSBT are unlocked (such as after 20 months), the selling pressure in the secondary market It will still happen, and if USDN lacks demand at that time, the death spiral will really appear.
summary:
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The market value of WAVES will be affected by the demand of USDN; at the current stage, USDN will fluctuate around $0.98.
If the market value of WAVES has been sluggish for a long time and the supply of USDN cannot be cut, then the death spiral of WAVES will only be late and will not be absent, pulling NSBT together.
3. WAVES funds
Another lending application on the Waves chain, Vires Finance, provides extremely high lending rates and savings income for stablecoin savings, and has therefore been questioned as a Ponzi scheme.
On April 1st, Twitter user @0xHamz questioned the Waves team for manipulating the price of WAVES through Vires Finance, calling it the largest Ponzi in the crypto world, and FUD sentiment spread. The specific operation is as follows:
1) Deposit USDN on Vires and lend USDC/USDT;
2) Transfer U to Binance and buy WAVES;
3) Convert WAVES to USDN through Neutrino, repeat operation 1)
It is equivalent to using USDN as collateral, borrowing USDC/USDT with high interest rate and leverage, and buying WAVES on the centralized exchange to pull the market, and the raised WAVES can be converted into more USDN, artificially creating demand. Due to the high degree of control of the project party and the insufficient circulation of WAVES, it is not difficult to increase the price.
Looking at the number of deposits and loans of USDC and USDT, there was a sharp increase from mid-February to the end of March, which coincided with the time when WAVES skyrocketed. Unreasonable demand for large amounts of borrowing due to its interest rate exceeding 20%;
Observing the number of transactions on the chain, there was no obvious activity during the skyrocketing period. It can be inferred that lending behavior is driven by a small number of addresses, and price increases are driven by centralized exchanges.
summary:summary:
The above-mentioned operation method is established, and behind the rise of WAVES, there is a strong push by market makers.
4. WAVES short event
The founder did not deny the existence of this operation method in the interview, but believed that it was an investment institution that used Waves’ on-chain mechanism; at the same time, he believed that the FUD remarks in the market were spread by Alameda Research for the purpose of shorting WAVES.
We checked the 3PHkZUJpS3AfmnXBNLCBmpqL25GJZb1hGiE address he marked as Alameda Research, and the data on the chain showed that a total of USDT/USDC of USD 80 million was deposited on March 5, and then about 640,000 WAVES (approximately USD 20 million) were successively lent and transferred into the currency. Ann sells, repays WAVES on April 8, and makes a profit of 10 million US dollars (assuming she sells at the highest point on April 1).
However, this operation is unreasonable. WAVES has perpetual contracts on exchanges such as Binance and FTX, and there is sufficient spot trading volume on South Korean exchanges such as Upbit. Less efficient use of funds to lend from Vires. One possible conjecture is that the institution issued a large futures contract empty order in advance on the centralized exchange, lent the WAVES spot through Vires, and smashed the market in line with the FUD sentiment, and then closed the contract empty order, bought back the spot and returned it.
The lending rate of USDC/USDT on Vires has exceeded 90%. In this case, the agreement will limit the withdrawal amount to 1000 U per day (until enough loans are repaid), and the address can no longer withdraw the 80 million U (large probability of bad debts). It is unknown whether the profits of the short seller can cover their costs.
After the above incident, the USDT/USDC on Vires ran, and it is now impossible to withdraw deposits and new loans. At the same time, USDN decoupled, but anchored back under the arbitrage mechanism; affected by the LUNA incident on May 12, USDN briefly de-anchored again, but due to the excessive decline in the market value of WAVES, the current total market value of WAVES+NSBT is 660 million US dollars, which is already lower than that of USDN. 840 million US dollars, in a serious shortage of reserves.
5. Summary
1) Affected by insufficient arbitrage and handling fees, USDN may fluctuate around 0.97 for a long time, but the supply may slowly shrink
2) WAVES may die slowly, but there will be no rapid collapse of LUNA
3) It is predicted that there will be a large-scale USDC/USDT repayment (or USDN liquidation) in Vires in the future, then there may be selling pressure after the USDN is unstaked and begins to circulate, and there may be another de-anchor.
4) Speculate on the three whereabouts of USDN:
Locked in the Vires protocol to obtain interest: the income mainly comes from the block reward of WAVES, and the currency standard is calculated at an annualized rate of 3%. If the price of WAVES continues to fall, the rate of return will drop severely.
The secondary market is selling, but the main trading volume is on Waves Exchange, and there is a risk of capital control
If Neutrino is sold for WAVES (limited daily), then WAVES will continue to fall
The team members are from top universities such as University of Chicago, Columbia University, University of Washington, Carnegie Mellon University, University of Illinois at Urbana-Champaign and Nanyang Technological University, and have served Morgan Stanley, Barclays Bank, Ernst Young, KPMG, HNA Group , Bank of America and other well-known international companies.
about Us
JZL Capital is a professional organization registered overseas, focusing on blockchain ecological research and investment. The founder has rich experience in the industry. He has served as the CEO and executive director of many overseas listed companies, and has led and participated in eToros global investment.
The team members are from top universities such as University of Chicago, Columbia University, University of Washington, Carnegie Mellon University, University of Illinois at Urbana-Champaign and Nanyang Technological University, and have served Morgan Stanley, Barclays Bank, Ernst Young, KPMG, HNA Group , Bank of America and other well-known international companies.
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If there are obvious facts, understandings or data errors in the above content, welcome to give us feedback, and we will correct the report.
The opinions in the report may have a high degree of interest correlation with JZL Capital, and this report should not be used as investment advice.
