Waves’ Pond’s Game

Today, DeFi researcher 0xHamZ posted about Waves on his personal social media platform. In his opinion, Waves is currently running an unsustainable Ponzi game, and the reasons given are as follows:

  1. Waves borrowed USDC and USDT stablecoins at an annualized interest rate of 35%, which they then used to buy their own Waves tokens, helping to fuel their price surge.
  2. By staking Waves tokens, Waves can mint more USDN native stablecoins;
  3. By staking USDN native stablecoins, Waves can borrow more USDC and USDT stablecoins from users;
  4. In order to maintain the stability of the system, this requires the market value of WAVES to continue to grow, so the key is to attract more people to deposit USDC and USDT stablecoins into its lending platform;
  5. When enough USDC and USDT stablecoin deposits cannot be attracted, the WAVES token will lose its source of purchase, so it will fall into a negative cycle, and when the market value of WAVES is lower than the outstanding debt of USDN, USDN will face the risk of de-pegging.

Here’s his take:

WAVES is the largest Ponzi scheme in crypto.

It borrows USDC at an annualized interest rate of 35%, which it then uses to buy its own tokens, fueling a surge in its price.

In order to maintain the stability of the system, this requires the market value of WAVES to continue to grow.

The final outcome of WAVES is to collapse, and USDN will experience de-anchoring.

WAVES is a layer 1 blockchain, and its current primary use is to mint USDN (the native stablecoin of the WAVES blockchain).

You can compare WAVE to LUNA/MKR, and USDN to UST/DAI.

WAVES’ market cap has grown 6x over the past two months, and its initial catalyst was the narrative around “Russian Ethereum,” which has outperformed ETH by a wide margin.

WAVES needs to expand its market cap so it can issue more USDN. The health of the ecosystem is defined as WAVES market cap/USDN. This ratio indicates how much USDN the system can issue. We have seen that USDN supply decreases once the ratio reaches 2.5x, which is the minimum target.

Waves' Pond's Game

WAVES created more USDN issuance capacity due to the skyrocketing price. Assuming that the target value is 2.5 times, WAVES can issue an additional 1.38 billion USDN.

The USDN yield for this target value will be 5.4%, while the USDC/USDT supply rate on AAVE is 3.5%.

We recently saw that USDN was minted at the fastest rate in history.

In the past 4 weeks, the market value of USDN has grown from $475 million to $875 million, an increase of 85%, while the size of the DAI market has declined over the same period.

Why would anyone want to hold USDN?

Waves' Pond's Game

  1. USDN is backed by WAVES
  2. The native staking rate of WAVES is 3.13%
  3. USDN yield = WAVES native pledge rate (x) support multiple
  4. The current USDN yield is 3.31% * 6.60 x = 21.8%

And as more USDN is issued, this yield will decrease.

To keep the train on track, WAVES’ market cap needs to keep growing.

Once the support multiple starts to drop, USDN’s yield will drop.

When the support ratio is 6.6 times, the yield of USDN is 21.8%, and when the support ratio is reduced to 2.5 times, the yield of USDN drops to 5.4%.

When yields are low, there is a risk of capital flight.

Below, I’ll walk you through how the WAVES team is using leverage to deal with massive supply shortages.

Here is the flow:

  1. Deposit USDN on the Vires protocol;
  2. Borrow USDC on the Vires protocol;
  3. Transfer the borrowed USDC to Binance;
  4. Use USDC to buy WAVES;
  5. Convert WAVES to USDN;
  6. restart;

You can track these actions through on-chain data.

Simply put, Vires is the equivalent of AAVE on the WAVES public chain, and it currently manages 70% of the total USDN (currently over 600 million USDN).

It also allows USDC/USDT lending operations. The current USDC supply APY rate on the Vires platform is 30%, which currently exceeds any other yield protocol.

Waves' Pond's Game

USDC/USDT borrowing on the Vires protocol has gone crazy over the past two months, with borrowing rates exceeding yield protocol rates on any other chain.

Who is borrowing money? Why do you want to do this?

Waves' Pond's Game

Waves' Pond's Game

WAVES has been borrowing USDC and USDT by collateralizing USDN. WAVES sends these borrowed USDC and USDT to Binance, which is then used to buy WAVES. Then, they transfer the purchased WAVES to their wallets, which are then used to mint more USDN.

Then, they stake the minted USDN on Vires.Finance to borrow more USDC/USDT stablecoins.

Repeat the above process.

The problem is that WAVES has to entice users to deposit USDC and USDT into the VIRES protocol so they can borrow these stablecoins through newly minted USDN.

This naturally requires them to offer above-market rates to incentivize people to deposit USDC and USDT into the VIRES protocol.

There is a supply of 100 million WAVES tokens, 85% of which are pledged, which makes the circulating WAVES only 16 million, plus some holders will not sell it, we can assume that 10.5 million WAVES are tradable, When only 10.5% of tokens are available for trading, then the market becomes easy to manipulate.

Waves' Pond's Game

But for this scheme to work, you need to attract “puppets” to deposit their USDC into Vires.

Therefore, the market value of WAVES is limited by the USDC supply pool.

Waves' Pond's Game

Once USDN reaches its target support multiple, USDN issuance will eventually stop.

And once the goal is reached, there is no more WAVES purchase plan.

The whole cycle will quickly perish.

If the price of WAVES falls enough, the market cap of WAVES may fall below the outstanding USDN.

This means that USDN will become insolvent and decouple.

If USDN decoupling does happen, users who deposit USDC will face huge losses, which will be a disaster.

I call this scheme a Ponzi game because the whole scheme is supported by borrowed money.

The system itself has no organic activity.

You just have to look at the recent transaction counts on the Waves platform.

Waves' Pond's Game

Every 2 days, between 10pm and 12pm EST, WAVES will issue USDN, borrow USDC, and then use it to buy WAVES.

Waves' Pond's Game

Waves' Pond's Game

This high volume/price action is luring day traders into a momentum bull mode.

The Korean exchange has always been the place where WAVES has the largest trading volume.

The Ponzi scheme continues.

The following is the on-chain data evidence:

Borrow USDC/USDT

https://wavesexplorer.com/tx/32 Ng2 T4 URX5 GsZszGwq5 nwFFtjB3 NtFotDEJPfeyzYV8

https://wavesexplorer.com/tx/5 A9 PKtnvf2 w6 WdEWTfuNE1 Waq6 J8 gwpEXGntAX7 ZTqjJ

Transfer USDC/USDT to Ethereum

https://etherscan.io/tx/0 xfff2 bf6 dd9 ad3 a222450 bf211 b6 e8 c30 ca5 cafe9361 da74 eeb5 a52 d6934 cb7 a4

Withdraw WAVES from Binance to native WAVES wallet

https://wavesexplorer.com/tx/2 GxRVurxUjUogb3 aquzTbtNESdJkoucTYsKsy96 D9 vhH

Mint USDN

https://wavesexplorer.com/tx/8 soLgy8838 tJUncVWmARqe7 Hm3 rxsmTiZCQSZrvApxLH

Mortgage USDN

https://wavesexplorer.com/address/3 PJKKT7 gsWiPBJj11 gkF3 Xv7 gKt8 s2 WPdTr/tx

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/waves-ponds-game/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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