Sasha Ivanov, founder and CEO of the Waves smart contract blockchain, said the crypto industry needs regulation to deal with issues of market manipulation and to protect users against bad actors.
In an interview with Be[In]Crypto, Ivanov also spoke about the “six whale accounts” that had outsized loan positions they could not repay, risking USDN’s dollar peg, and how he stepped in with $500 million of his own money to save the day.
Below is an excerpt of the interview.
How did you manage to restore USDN’s peg, which dropped to $0.80 in April? We understand you took on $500 million worth of personal debt to defend the peg. How did that work exactly?
Yes, the issues first occurred in April when six whale accounts borrowed the vast majority of Vires Finance’s liquidity and the overall crypto market crashed. Since the price of WAVES was falling quite fast — just like every other crypto at the time — the six overleveraged whales could not repay their loans as the amount of interest they owed continued to grow. This is when I had to step in to take roughly $500 million worth of this bad debt into my own wallet to gradually repay it. Not doing so would have allowed those accounts to be liquidated, creating more selling pressure due to the quantity of USDN sold.
That selling pressure in turn would have massively increased the risk of depegging. Since then, we have collaborated with the Waves community to take a number of steps — all approved by majority consensus via decentralized voting — to prevent this situation from happening again. Apart from subsuming the bad debt and preventing future depegs, we have also introduced new incentives to support USDN through the Smart Utility Recapitalization Feature (SURF) token. Additionally, we have deployed a new system of dynamic borrow and withdrawal limits to ensure that Vires Finance can continue to operate even under extreme crypto market conditions.
You had a public spat with Sam Bankman-Fried over allegations of manipulating the price of WAVES. How did that situation resolve?
Crypto market manipulation is a sign of the times; as much as we in the space wish it wasn’t so, 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 kept safe. We’re still working on 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 method of governance that will reward actions and decisions that support the community and penalize actions and decisions that harm it. It is a new design for decentralized governance and one that we hope will be taken up across the crypto sector.
Stablecoins like USDC have become major talking points following the recent sanctioning of Tornado Cash. How does USDN relate with regulators as far as enforcement of sanctions is concerned, vis-a-vis issues of user privacy?
While this may not be the most popular opinion, I believe we need regulation to protect users. As such, we are absolutely in favor of finding some real and efficient solutions through intelligent conversations with regulators. That being said, we need to respect the values of immutability, resistance to censorship, and decentralization when regulating – there has to be some agreement here otherwise the core values of crypto will be compromised.
Blanket bans on accounts linked to Tornado Cash and arresting developers for creating code that is used for illegal means is totally ludicrous. Imagine jailing the inventor of a knife for crimes committed with it! Ridiculous that this is where they’ve gone with enforcement actions. There needs to be an informed discussion around what blockchain technology is before knee-jerk enforcement actions like this are made. We’re happy to talk with regulators at any time about how to do this sensibly while respecting the values of the people in the space.
What is the risk that USDN could ever see a death spiral in the fashion of Terra’s UST?
For starters, USDN is built entirely differently 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 demonstrably proved its resilience in extremely volatile conditions.
Not only that, the SURF token I mentioned earlier was designed specifically to provide backup for collateralizing USDN in times of emergency. This is a critical property for an algorithmic stablecoin to have since extreme market conditions are unavoidable. If the backing ratio of USDN goes below 100%, SURF becomes available for purchase. The price will be set to whatever the ratio of USDN is at the time, so if it’s 50%, for example, then one SURF will be priced at $0.50. Once the ratio reaches 115%, all SURF tokens are liquidated back into USDN.
This creates a profit incentive to collateralize the stablecoin and help keep the peg stabilized. Another feature of our revival plan is the ability to dynamically limit withdrawals and borrows if the platform becomes overutilized. For example, when more than 95% of funds are utilized, withdrawals will be limited to $1,000 a day per account. This limit will be automatically lowered as fund utilization decreases. When it drops below 80%, all withdrawal limits will be lifted until those thresholds are reached again. This means that USDN won’t collapse even in a worst-case scenario event going forward.
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