Sasha Ivanov, founder and CEO of smart contract blockchain Waves, said the crypto industry needs regulation to deal with market manipulation issues and to protect users from bad actors.
In an interview with Be[In]Crypto, Ivanov also spoke about the “six whale accounts” that had outsized loan positions they couldn’t repay, risking the USDN’s dollar peg, and how he stepped in with $500 million of his own money to save the day.
But the stablecoin remained fragile, falling to around $0.90 on August 28. The dollar neutrino, or USDN, is an algorithmic stablecoin. native to the Waves ecosystem.
Below is an excerpt from the interview.
How did you manage to reestablish the USDN peg, which fell to $0.80 in April? We understand that you incurred $500 million in personal debt to defend parity. How exactly did it work?
Yes, trouble first arose in April when six whale accounts borrowed the vast majority of Vires Finance’s cash and the overall crypto market crashed. Since the price of WAVES was falling quite rapidly – like all other crypto at the time – the six over-leveraged whales could not repay their loans as the amount of interest they owed continued to rise. That’s when I had to step in to take about $500 million of that bad debt out of my own wallet to pay it off gradually. Failure to do so would have allowed these accounts to be liquidated, creating increased selling pressure due to the amount of USDN sold.
This selling pressure would in turn have considerably increased the risk of unanchoring. Since then, we’ve worked with the Waves community to take a number of steps – all approved by majority consensus via decentralized voting – to prevent this from happening again. In addition to subsuming bad debts and preventing future depegs, we have also introduced new incentives to support the USDN through the Smart Utility Recapitalization Feature (SURF) token. Additionally, we have rolled out a new system of dynamic borrowing and withdrawal limits to ensure that Vires Finance can continue to operate even in extreme crypto market conditions.
You had a public spat with Sam Bankman-Fried over allegations of WAVES price manipulation. How was this situation resolved?
The manipulation of the crypto market is a sign of the times; as much as we in space wish it weren’t, it’s there nonetheless. People with large balances and high levels of intelligence are able to profit at the expense of retail traders. Our resolution is regulation, which is on its way. In the meantime, we have been working on our own solutions, such as the upcoming launch of PowerDAO to help us regulate our own ecosystem.
By doing so, our users will be protected. We are still working out the details of how this will work, but it will be totally unique for the Waves community to have a DAO built to protect their interests. The PowerDAO will have a new mode of governance that will reward actions and decisions that support the community and penalize actions and decisions that harm it. This is a new take on decentralized governance and one that we hope will be adopted across the crypto industry.
Stablecoins like USDC have become major talking points following the recent Tornado Cash sanction. What is the USDN’s relationship with regulators regarding enforcement of sanctions, vis-à-vis user privacy issues?
Although this may not be the most popular opinion, I think we need regulation to protect users. As such, we absolutely support finding real and effective solutions through intelligent conversations with regulators. That being said, we must respect the values of immutability, censorship resistance, and decentralization when regulating – there must be agreement here, or the core values of crypto will be compromised.
The general banning of accounts linked to Tornado Cash and the arrest of developers for creating code used for illegal purposes is totally ridiculous. Imagine imprisoning the inventor of a knife for crimes committed with it! Ridiculous that this is where they went with enforcement. There needs to be an informed discussion about what blockchain technology is before law enforcement actions like this are taken. We are happy to discuss with regulators at any time how to do this in a sensible way while respecting the values of the people in the space.
What is the risk that the USDN could ever see a death spiral like Terra’s UST?
For starters, USDN is constructed in a totally different way than UST, otherwise we would have suffered the same fate already. Our system was designed to prevent such “death spirals” with USDN and Waves in the first place, and I think it’s safe to say that USDN’s unique design has proven its resilience in extremely volatile conditions. .
Additionally, the SURF token I mentioned earlier was designed specifically to provide a backup to secure USDN in an emergency. This is an essential property for an algorithmic stablecoin, as extreme market conditions are inevitable. If the USDN support ratio drops below 100%, SURF becomes available for purchase. The price will be set regardless of the USDN ratio at that time, so if it is 50%, for example, then a SURF will be priced at $0.50. Once the ratio reaches 115%, all SURF tokens are liquidated into USDN.
This creates a profit incentive to secure the stablecoin and help keep the peg stabilized. Another feature of our recovery plan is the ability to dynamically limit withdrawals and borrowings if the platform becomes overused. For example, when more than 95% of the funds are used, withdrawals will be limited to $1,000 per day per account. This limit will automatically be lowered as the use of funds decreases. When it drops below 80%, all withdrawal limits will be lifted until these thresholds are reached again. This means the USDN will not crash, even in the worst case scenario.
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