We all know that practically every stablecoin has natural volatility between 0.1 and 0.3 for both sides. Even algorithmic stablecoins has this behavior. However, USDN, Neutrino’s stablecoin, has had a behavior that seems to have no correction.
Until April 2nd, the price of USDN has been stable, getting between $0.97 to $1.03. But from that day, the price reached $0.87. Therefore, in this article, you will find out what is behind this unusual drop.
Theory 1: Waves Used USDN to Increase the Price of WAVE in an Artificial Way.
On Reddit, there is one theory that is worth explaining to understand this situation.
The USDN stablecoin is backed by WAVE tokens. This means that the project behind the Neutrino protocol is Waves. Therefore, many comments on both platforms are saying that the Waves Team is inflating the TVL (total value locked) and the price of WAVE by collateralizing USDN to borrow USDC and USDT and then buy WAVES in an endless cycle.
In other words, one of the protocols with the most influence on the value of the USDN stablecoin is using it to hold other USDC and USDT without any control. In case this is true, this use of loans is increasingly used, however it is very dangerous to use it in this way because the market understands that you are selling the token massively, which generates a decrease in its price.
Theory 2: Alameda Research Manipulated WAVE Price to Make USDN Drop.
Moreover, another comment added more strength to this theory: One of the lead devs in Waves, accused Alameda Research of orchestrating the de-Pegg but Alameda has denied it.
In short, Waves has used the USDN stablecoin unethically to increase inorganically the WAVE price. But Sasha Ivanov, CEO of Waves, said that Alameda Research is manipulating WAVE price to make their holders sell it. Therefore, the price of USDN, which is backed by WAVE tokens, will go down. And that is what is happening now.
I hope I caught your attention. Follow me.
— Sasha Ivanov 🌊 (1 ➝ 2) (@sasha35625) April 3, 2022
According to the Twitter Thread published by Sansha Ivanov, here is a brief timeline of how this situation ended:
- A Bloomberg interviewer said to Sasha Ivanov that the growth of WAVE price was related to the Russian-Ukrainian War. Also, the FTX exchange made a transaction related to this. Alameda Research owns FTX Exchange.
- In the third week of March, started to make noise on Twitter about WAVE’s growth. They wanted to incentive people to short WAVE (buy and sell it in a short period) to make its price go down.
- As a result, users started to withdraw WAVE liquidity in Vires Finance.
- Sasha Ivanov found that Alameda Research started to borrow WAVEs in Virex Finance on March 20th. According to this thread, Alameda Research did this via Binance. Waves don’t do that.
Reaction to the USDN Drop Price
To make prevent price manipulation, in the Vires Finance forum, the moderator submitted a voting proposal on April 3rd to limit the number of borrowed WAVES and USDN tokens. Also, the proposal included a maximum borrow APR of 40%.
This was considered negatively by users, saying these causes:
- For not being liquidated, everyone has to repay every penny of their loan in WAVES, USDN, and EURN within 7 days.
- This proposal wants to protect one large borrower of USDC/USDT, Alameda Research.
If this happens, people will make people stop using the Vires Finance protocol.
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