Waves Founder Liquidates his Supply of USDN to Cover Over $500M of Debt

Sasha Ivanov, the founder of the Waves (WAVES) project recently implemented a unique way of dealing with the so-called liquidity crunch that threatens the project’s Neutrino (USDN) stablecoin. Ivanov decided to subsume six overextended loans involving USDN into his own wallet, essentially covering each of the 100%.

His goal is to try to slowly liquidate the debt, without leading to the depegging of the stablecoin. The amount of debt that he took onto himself is currently over $530 million. The Waves founder spent the past month liquidating his own supply of USDN, and Waves stated that it is confident that the debt will be made whole.

With that said, the lenders are currently encountering certain limitations. For example, those who wish to withdraw assets have encountered withdrawal limits. Meanwhile, there is also high competition for available liquidity. While Waves does feel confident about the debt, as mentioned, there are many critics who are actively questioning whether it is feasible for the debt to be repaid at this point.

The current situation has even deeper implications, however, as many views it as the failure of decentralization to survive the time of crisis, noting that centralization of debt is the only thing keeping Waves afloat now. Sasha Ivanov attempted to explain the situation by noting that Waves is still decentralized, but that he will assume full responsibility for what happens in the project. Further, Ivanov noted that there was recently a liquidity crunch on Vires.finance, where several accounts overextended the protocol lending capacity, and are close to default now.

#Waves is decentralized, but, on the other hand, I assume full responsibility for what happens in Waves.

Recently there has been a liquidity crunch situation on https://t.co/X8GtUDr6fT, several accounts overextended the protocol lending capacity and are close to default now

— Sasha Ivanov 🌊 (1 ➝ 2) (@sasha35625) May 24, 2022

Can Ivanov solve the liquidity issue?

Originally, Ivanov proposed the idea of taking on the debt to his own account back in May of this year, and the vote was held on May 31st. And, while Vires reduced the withdrawals to $1,000 USDC or USDT per user per day, many have reported struggling to withdraw anything. Any liquidity that gets added to Vires gets used up immediately, and not being there at the right time means missing the opportunity to withdraw any amount of money

Also, while there were multiple reports of the USDN depegging during the past several months of crypto price crashes, the project defied such speculation. Furthermore, Vires’ debt centralization and withdrawal limits have allowed it to restore the $1 peg and avoid suffering the same death spiral that caught UST.

While Ivanov is currently in a rather difficult situation, the company firmly believes that he can find a way out, and Waves ecosystem’s head, Coleman Maher, stated that there is 100% confidence that the situation will be resolved. Other sources from within the company said that it is expected that Ivanov’s debt can be paid down in a month or two, but the critics remain skeptical, as Vires has no real mechanism to return liquidity to the system.

To learn more visit our Investing in Waves guide.