Coming Clean
It’s time to be direct and explain why I’m involved in crypto and how I perceive its significance, as well as what has been happening in Waves over the last year and a half. I’ve been engaged in blockchain projects for almost a decade now. Initially drawn to crypto by its promise to decentralize social consensus and elevate social interaction to a technical protocol level, I did recognize the value of tokenization, price discovery, and the financial aspect of crypto, though I always saw it as just a part of the bigger picture.
However, since 2017, crypto has heavily focused on trading and finance, with limited progress in real-world governance through DAOs, which have proven to be inefficient imitations. Waves started falling behind major crypto projects around 2018, especially when venture capitalists (VCs) entered the scene. We didn’t receive external investments since the ICO in 2016, probably due to our Russian roots and lack of so-called “marketing.” With the introduction of incentivized swap pools and automatic market making, crypto took a different direction, resembling highly leveraged forex trading.
Unfortunately, the allure of money excites people the most. To keep up with the market, Waves emulated various features from Ethereum projects, such as on-chain pools and yield farming, but often attempted to implement them differently. Despite our efforts, it was challenging to compete with VC-backed projects that had abundant liquidity for yield farming incentives.
Our stable coin, USDN, aimed to address this challenge by creating a product that attracted liquidity to the ecosystem, following the Basis model that incentivized traders to maintain collateralization levels. However, unforeseen black swan events proved incentive-based models to be flawed.
In 2022, Waves experienced significant external market making activity, combined with a growing USDN capitalization and subsequent heavy shorting of $waves, resulting in negative PR and a liquidity crunch in the Waves ecosystem. DeFi protocols like vires.finance and staking products on waves.exchange heavily relied on USDN. To resolve the situation, USDN had to be liquidated, decreasing its collateral in Waves and causing the Waves price to drop, while attempting to maintain USDN value around $1. This crisis also affected wrapped tokens on waves.exchange, as its staking product was backed by USDN.
Although we were able to recover about 90% of the funds in waves.exchange staking though USDN conversion and also using our resources (all Waves from the ICO), we couldn’t keep up with the Waves price decline. As a result, we now have hundreds of millions worth of stuck liquidity in the vires.finance lending protocol, backed by USDN, which lost its peg and essentially became an ecosystem index token.
We are currently going through very difficult times as the world undergoes a transformative shift. People are facing instability and uncertainty. I do not wish to contribute to this instability and will devote all my efforts to resolve the situation with the stuck funds, making it my top priority. At the same time, we need to progress by creating new products that can increase the value of the Waves ecosystem without necessarily attracting new liquidity. Our upcoming L2 network based on top of Waves L1, where USDN(XTN index) holders can become its main beneficiaries, will play a crucial role in achieving this. XTN itself is being slowly bought back through Waves inflation, as per the proposal accepted by the Waves miners, which means XTN holders or Vires users who have XTN and choose not to convert to the new L2 token should eventually be compensated as well.
When I started Waves, I vowed not to hold any crypto but Waves, as I consider myself a crypto anarchist and wanted to avoid possessing any property. At present, I don’t have any Waves or other cryptocurrencies, but it doesn’t matter, as I strongly believe that blockchain surpasses the concept of money and has a more profound purpose beyond creating “better money.” If Waves were to fail, the world would lose one project that genuinely seeks to make blockchain applicable to various areas beyond token trading. I ask for your support and wish me luck, or at least don’t hate me so much :)
