Why did Waves surge 60% in one day? This article helps you understand Neutrino stablecoin and the Waves ecosystem

Source: PA Research Society, PANews

Introduction

Many people associate the rise in the price of Waves tokens with the Russia-Ukraine war. Excluding the hype at the news level, from the perspective of product functionality, Waves can indeed meet people's needs for asset hedging and provide various experiences.

The price of Waves soared during the Russia-Ukraine war

The reasons are as follows:

1. Waves has its own exchange, where USDN stablecoins can be purchased directly through Waves Exchanges. This exchange integrates the functions of centralized exchanges and decentralized exchanges, satisfying the demand for purchasing USDN with fiat currency and providing a good trading experience.

2. The stablecoin system of Waves is relatively well-designed. The introduction of NSBT greatly alleviates the issue of insufficient reserves for USDN, further ensuring its stability. When the SWIFT international settlement system or other payment infrastructures are shut down, USDN can serve as a means of transferring fiat value.

3. Waves has DeFo (Decentralized Foreign Exchange). Different countries can use DeFo tools to exchange USDN with various algorithmic stablecoins such as EURN, RUBN, CNYN, JPYN, UAHN, NGNN, BRLN, GBPN, TRYN, etc., meeting the needs for transferring various stable assets.

4. In addition to asset transfer, the ecosystem of the Waves public chain is also very complete, including secondary markets, lending savings, NFTs, games, and other projects. Developers can use Waves development tools to create more use cases, satisfying people's needs for financial services and entertainment.

5. Recently, there was an incident where exchanges froze Russian account assets, but such occurrences are very unlikely on Waves. The enterprise-level service platform WavesEnterprise has been collaborating with many Russian industrial asset companies for years, covering both enterprise-level and government-level services, from the transfer of industrial assets to the recording of office property.

Currently, only the WavesEnterprise blockchain platform has the capability to undertake such business. For a blockchain platform serving enterprises, Waves will not easily engage in actions that could cause panic among enterprise and government clients.

List of some Russian clients of WavesEnterprise

6. In addition to serving large enterprises like Microsoft through private chain technology, Waves has also developed a relatively complete ecosystem on the public chain, creating various DeFi, NFT, and game wallets for public applications.

Thus, choosing a public chain for asset hedging is logical. Although new public chain concepts are emerging constantly, Waves is one of the few financial public chain projects that have been tested over the years.

1. Origin

Waves was founded in 2016 by Ukrainian scientist Sasha Ivanov.

Ivanov majored in theoretical physics for seven years in university and worked in artificial intelligence for seven years after graduation. In his spare time, he was active in online communities primarily composed of scientists. As blockchain communities became increasingly active, Ivanov became deeply involved and decided to develop enterprise-level blockchain applications.

Waves founder Ivanov

Ivanov has a clear goal for Waves— to apply blockchain technology to finance and financial-related fields such as securities, crowdfunding, and fiat transfers, thereby creating a financial public chain.

Today, the Waves ecosystem not only achieves a small cycle within the ecosystem but also excels in cross-chain solutions, enabling interaction with other public chains. Its issued stablecoin USDN also supports various chains such as ETH and BSC and is currently circulating in the market.

2. Market Value and Price

Waves conducted an ICO in 2016 by accepting donations in Bitcoin, raising 30,000 Bitcoins (approximately $16 million), and at one point became the third-largest blockchain crowdfunding project after The DAO and Ethereum.

As of March 17, 2022, according to data from coinmarketcap.com, Waves has a market value of $3,422,333,753.19, ranking 45th in total market capitalization, making it the largest public chain project in the Russian region.

Waves market value trend

Waves price trend

The price of Waves reached an all-time high of $41.86 in May 2021.

Recently, Waves experienced a 10-week decline from $32.44 to $8.02 in October 2021. On February 21, 2022, amidst an overall market decline, Waves began a strong rebound, rising significantly over three consecutive weeks from $8.2 to $32.93, an increase of 300%, and is currently approaching the historical resistance level of 32-34.

3. Stablecoin USD-Neutrino (USDN)

1. Market Value and Distribution

USDN ranks 8th in market value among stablecoins, with only half the market value of Terra USD, which is also an algorithmic stablecoin with its own ecosystem.

The USDN on the ETH and BSC chains is almost entirely used to provide liquidity in the Curve protocol, with the amount of USDN held on the ETH chain far exceeding that on BSC.

(Note: ++Ellipsis.finance++ ++is++ ++an++ ++authorized branch of++ ++Curve.fi that provides Curve's StableSwap protocol for users on the BNB chain.)

Comparison of USDN amounts in ETH and BSC wallets

2. Stablecoin System Design

Currently, the most popular stablecoins in the market, such as USDT and USDC, have the major issue of relying on real-world fiat funds as reserves, which is still not sufficiently decentralized. The Neutrino protocol is primarily designed to address this issue.

Firstly, Neutrino does not use fiat currency as reserves like Tether's USDT, but rather uses an algorithmic stablecoin protocol and on-chain assets as collateral for reserves. The main collateral asset currently is Waves. Secondly, the principle of Neutrino addressing insufficient reserves is still "utilizing market incentives for automatic adjustment," but unlike Terra's UST, Neutrino has added the mechanism of issuing NSBT to achieve "secondary marketization of reserves."

This stablecoin system consists of Waves, USDN, and NSBT:

(1) Waves

The core token of the Waves ecosystem, used to pay transaction fees. It is based on the lPoS (Leased Proof of Stake) consensus mechanism and can serve as collateral for USDN in the Neutrino system.

(2) USDN

An algorithmic stablecoin pegged to the US dollar, which can be used as collateral for other assets.

The maximum supply of USDN depends on the maximum capitalization of Waves tokens.

USDN has no pre-allocation or pre-mining. The increase and decrease in USDN supply are also controlled by the market.

(3) NSBT

The governance token of Neutrino, generated through smart contracts, with parameters depending on the reserve deficit of USDN, which can be used to maintain the stability of USDN. The market price of NSBT is determined by the supply and demand dynamics on cryptocurrency exchanges and the Neutrino smart contracts.

In addition to serving as a stable medium between Waves and USDN, NSBT tokens can also be used for protocol operations, creating collateral positions (for generating USDN from Waves), and paying fees to form "hedge funds" to generate new synthetic assets, such as GLDN (gold), EURN (euro), etc.

Waves token architecture diagram

3. How USDN Maintains Stability

(1) Balance State

The generation of USDN is automatically achieved through the smart contract system. When a certain value of Waves tokens is locked in the smart contract's account, an equivalent value of USDN can be minted. Ideally, when the market value of USDN equals that of the locked assets, a balance is achieved.

(2) Arbitrage Mechanism

When the market demand for USDN increases, the price of USDN will rise above $1. At this point, traders can exchange Waves tokens for USDN through the Neutrino protocol and then sell USDN at a higher price on exchanges to profit. Such arbitrage actions will increase the supply of USDN in the market, thereby maintaining the price back to $1.

Arbitrage mechanism

Conversely, if the supply of USDN on exchanges significantly increases, it will lead to a price drop below $1. Traders can buy USDN in the market and exchange it for Waves through the Neutrino protocol to profit.

This is similar to the arbitrage mechanism of Terra UST, but the Neutrino protocol also addresses the issue of reserve asset price fluctuations by issuing NSBT.

4. How to Address the Impact of Reserve Asset Price Fluctuations on USDN

When the price of Waves rises, the market value of the reserve asset Waves begins to exceed that of the USDN stablecoin. In this case, the smart contract detects an excess of reserves and generates an equivalent amount of USDN to buy back NSBT to increase the supply of USDN.

When the price of Waves falls, the reserve asset will be below the corresponding value of USDN. In this case, the smart contract detects a shortage of reserves, which can be addressed through auctions, generating NSBT and requiring Waves to purchase (NSBT/Waves trading pair).

To facilitate understanding of the NSBT operating mechanism, let's take an example:

Suppose USDN is currently valued at $1 million, and the price of Waves as a reserve has dropped by 10%.

Thus, the Neutrino protocol only has $900,000 in reserve funds to cover USDN.

To fill this $100,000 gap, the smart contract will issue NSBT. The amount of NSBT issued will depend on the orders in the order book and the discounts from traders.

Assuming at this time only one trader has placed an order with a suggested discount of 20%. This means that paying an equivalent of $100,000 in Waves can obtain $125,000 in NSBT.

When the price of Waves rises again, the trader will be able to liquidate NSBT at $125,000 or higher. Thus, the trader's profit will reach $25,000 or more. In this process, arbitrageurs achieve profits, and the Neutrino protocol fills the $100,000 reserve gap.

5. The Impact of USDN on Reserve Asset Prices

As USDN gradually circulates in the market, the Neutrino mechanism will, in turn, begin to affect the tokens used as reserves (taking Waves as an example).

(1) Deflation

The scale of Waves reserves determines the issuance quantity of USDN. Conversely, when USDN is in short supply, due to market and Neutrino mechanism adjustments, the amount of Waves as reserves will increase, leading to a decrease in the circulating supply of Waves in the market, causing deflation of Waves and subsequently increasing its price.

It is worth mentioning that the Neutrino protocol is not only applicable to Waves but can also provide deflation mechanisms for DeFi-oriented blockchain platforms such as Ethereum, EOS, and Cosmos.

(2) No Loss Trading

In traditional token conversions, converting Waves to USD and then back to Waves can cause a certain price drop. Unlike other third-party exchanges, Waves' own ecosystem's smart contracts can avoid price changes due to spreads or low liquidity during trading, ensuring that the conversion from Waves to USDN does not incur any loss in value for Waves.

6. Risks and Solutions

The following are some identified risks and corresponding risk mitigation plans:

|----------------|------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------| | Risk | Description | Solution | | Hacking attacks on smart contract infrastructure | In the early stages, deployed smart contracts may have vulnerabilities that hackers can exploit to infiltrate and steal system information. In the worst case, all tokens stored in the smart contract could be stolen with no chance of recovery. | Establish an emergency shutdown mechanism that allows USDN and NSBT users to retrieve their assets. Anomaly detection tools can be written using the RIDE programming language. The RIDE of the Waves ecosystem allows for direct migration of smart contracts. | | Black swan events affecting reserve token prices | A significant drop in the price of Waves. | Neutrino smart contracts will issue NSBT to compensate for the shortage of reserve funds. At the same time, emergency oracles can unilaterally trigger emergency shutdowns of smart contract operations. | | Pricing errors, DDoS attacks | Specifically refers to erroneous price feedback from oracles, leading to abnormal market dynamics for Neutrino's value over an extended period, diluting Neutrino while failing to provide sufficient liquidity and stability to the market. | Neutrino states and conversions can be modeled, and different parameters can be simulated for these models to determine various parameters, limits, and threshold levels for operations within smart contracts. |

7. Summary

Waves has achieved a balance between USDN and reserve market values by introducing NSBT, thereby addressing the issue of insufficient reserves. It has expanded our thinking on the design of algorithmic stablecoins. Although Waves has its own security protection mechanism, it still faces the aforementioned risks.

The market value of USDN lags behind that of UST, another algorithmic stablecoin, not only because USDN's market value is closely related to Waves' market value, which limits USDN's issuance, but also due to application scenarios and narratives. Similar to Terra's UST, when the applications within the Waves ecosystem become broader, the narrative of USDN will become more substantial, leading to a spiral increase in the market values of both.

4. Waves Ecosystem and Main Applications

1. Basic Introduction

Currently, the main applications of Waves include the Waves enterprise service platform, Neutrino protocol, Gravity protocol, and other applications in the DeFi and financial sectors, as well as NFT collectibles and gaming applications.

Overview of the Waves ecosystem

At the same time, Waves has launched its own Ride programming language and supporting developer tools for developers.

Waves developer components

2. Waves Locked Asset Distribution

In terms of the number of protocols in the Waves ecosystem, it lags far behind the top 9, but its TLV has already ranked in the top 10, with most locked assets concentrated on the ETH chain, followed by the Terra chain. (Data sourced from defillama.com)

Ranking of total locked assets on public chains

Ranking of Waves locked assets on various chains

Ranking of main Waves protocols by TVL

It can be seen that the locked assets within the Waves ecosystem are currently mainly distributed among Neutrino (NSBT) and Vires Finance (VIRES).

3. Waves Enterprise

WavesEnterprise is a platform focused on providing blockchain technology services for enterprises and governments.

WavesEnterprise uses a hybrid model, meaning that public and private chains are integrated within one ecosystem, combining the advantages of both public and private blockchains. This allows Waves to retain decentralization, data storage and privacy security while also ensuring legal compliance.

Many people are unclear about the relationship between WavesEnterprise and Waves. WavesEnterprise is an independent project with its own team, ideologically aligned with the Waves ecosystem, and can share the Waves ecosystem through the Gravity protocol. The technology of WavesEnterprise was once a branch of the Waves protocol, but the target users are different, so the technical intersections will diminish over time.

The application fields of WavesEnterprise's blockchain service solutions include manufacturing, retail, art, healthcare, oil and gas, fintech, education, etc., allowing enterprises to choose according to their needs.

Major partners include: Alfa Bank (the largest private bank in Russia), RUSAL (one of the top ten aluminum companies globally), X5 RETAIL GROUP (a retail giant in Russia with 16,500 retail stores), ROSNEFT (the largest telecommunications company in Russia), Rosseti (the national grid of Russia), etc. Additionally, a national electronic voting system developed in collaboration with the Russian government has also been launched.

Waves' collaboration with Microsoft

Most of these are giants in Russia's traditional heavy industry and telecommunications, but they are not limited to Russian industries. On July 16, 2020, WavesEnterprise signed a memorandum with Microsoft's Russian office regarding the joint development of enterprise blockchain in Russia, reaching a strategic cooperation agreement in the fields of enterprise blockchain solutions and cloud technologies. The list of such assets is very broad, ranging from heavy machinery to basic office equipment.

Vires Protocol is a lending protocol on the Waves blockchain. Users, wallets, and dapps can participate as depositors or borrowers. Depositors provide liquidity to the market to earn passive income, while borrowers can obtain loans through over-collateralization.

In ++Vires.finance++, all deposited funds participate equally in interest-earning activities. The greater the market demand for borrowed assets, the greater the returns for lenders in APY. Users can lend and borrow the following tokens: WAVES, USDN, USDT, ETH, and BTC. Moreover, ++Vires.finance++ also supports direct cross-chain asset transfers, with technology provided by WavesExchange.

Previously, the founder of Waves tweeted that ++Vires.finance++ could offer over 25% APY, which also drew comparisons to Terra's Anchor that attracted users with 20% APY. Similar to the Terra ecosystem—UST—Anchor Protocol, Waves has also formed a funding flow of Waves ecosystem—USDN—Vires Protocol.

5. Waves Exchange

WavesExchanges is one of the earliest decentralized trading applications (DEX) built on the Waves chain. It integrates the functions of centralized exchanges and also employs a decentralized automated market maker (AMM) program. Users can use the commonly used limit trading mode of CEX in WavesExchange, as well as the AMM mechanism of DEX.

WavesExchange features:

On WavesExchange, in addition to using wallets, users can exchange cryptocurrencies, buy and sell stablecoins, and earn passive income through investments. Additionally, users can even issue their own cryptocurrencies with one click. It can be said to be a powerful tool for interacting with many functions provided by the Waves protocol.

Some services of Waves Exchange

waves.exchange allows users to stake USDN for a yield of 12-15%, with daily settlement of earnings and the ability to withdraw at any time.

6. Waves Keeper

Keeper is the wallet tool of the Waves ecosystem, currently available for all popular browsers including Google Chrome, Firefox, Opera, and Microsoft Edge.

Waves Keeper display page

Users can view account assets and NFTs through WavesKeeper, transfer funds within the WavesKeeper interface, and directly exchange assets through WavesKeeper integrated with Swop.fi.

7. Gravity Protocol

The Gravity protocol is an oracle protocol under the Waves ecosystem, used to achieve on-chain and off-chain data interaction and communication between multiple chains.

\<1) Real Data

Gravity does not issue a native token, providing great convenience for other applications to integrate Gravity services. If an application wants to integrate Gravity's oracle services, they can use the protocol's own tokens for payment, and Gravity's nodes will share this revenue. Due to the binding of interests, these nodes will honestly provide real and valid data.

(2) Open Ecosystem

Gravity creates a more inclusive open ecosystem, addressing scalability and stability issues. The Gravity protocol not only helps nodes provide data but also offers asset liquidity and cross-chain exchanges.

At the same time, the Gravity protocol can link any blockchain to the outside world, allowing for the construction of fully decentralized gateways on top of it, helping to complete asset locking and transmit locking information to another blockchain network, facilitating cross-chain asset transfers.

Gravity enhances the liquidity and capital efficiency of crypto assets, providing a variety of use cases for building various DeFi products. Ducks is a digital duck chain game that collects NFTs. All characters, items, resources, and achievements in WavesDucks are represented by NFTs.

Currently, the average monthly active users have reached 296,000, making it the main game of the Waves community, which also incentivizes the community to promote the Waves ecosystem together. Specific gameplay includes:

(1) Combat: Fight for different farms and earn tokens as rewards.

(2) Growth: Raise ducklings and cultivate them into higher-level NFTs, which can increase the price of NFTs.

(3) Breeding: Hatch NFT ducks to expand collections and profit opportunities. Unlike most NFTs, ducks can produce EGG tokens that can be extracted or used in the game. Staking NFTs generates passive income.

(4) Guilds: For each event, WavesDucks sets up communication communities such as Telegram groups.

Waves Ducks community activities

9. Swop.fi

++Swop.fi++ is an AMM automated market maker mechanism that allows users to instantly exchange their tokens without creating orders or waiting for transactions to execute. The ++Waves++ blockchain ensures that every transaction can be completed within seconds, and the smart contract call fee is only 0.005. This project is open to liquidity providers: any user can add to the liquidity pool and earn SWOP rewards. The current total locked value (TVL) of the project is $21,471,027.

Users can earn a portion of transaction fees from each pool by providing liquidity to the funding pool. All pools, except the Waves-BTC pool, will use USDN or EURN as one of the trading assets. The annual yield for USDN staking is generally between 8-15%.

In addition to mining, currency exchange, and governance, ++Swop.fi++ can also serve as a project launchpad, allowing users to purchase tickets based on the amount of staked SWOP to participate in different projects.

Swop.fi IDO project details

10. Waves Association

Waves Association is a non-profit organization dedicated to promoting Web 3.0 worldwide, primarily aimed at facilitating research within the Waves ecosystem and providing funding support for projects based on the Waves protocol.

Similar to the Ethereum Foundation, WavesGrants has launched a grant program to support individual developers, teams, and startups that serve the Waves ecosystem.

The amount of funding is determined based on specific circumstances, considering factors such as technical complexity, details of the proposed solution, the needs of developers/teams, the scale and importance of Waves projects, and other criteria.

All grants are conducted within the Waves system, and the ++grant distribution and awarding process++ is executed through ++DAO++.

Waves Association support program

Waves Association recently announced a $1 million Waves grant program for projects developed on the Waves infrastructure. As a core and binding component of WavesTech, Waves Association provides governance and support for the entire Waves ecosystem and cultivates more Web3 talent for Waves.

11. Future Plans

Waves has outlined specific content for the 1→2 version iteration, including:

(1) Support for the Ethereum Virtual Machine

By providing a comprehensive infrastructure of development and analytical tools, making Waves more easily accepted by external teams.

(2) Open new DAO governance models,

Providing additional rewards for participant incentives and allowing them to own 'skins' in the game. Waves DAO will upgrade the old futarchy concept, thus introducing a new universal governance model, which is said to have applications far exceeding current blockchain technology.

(3) Cross-chain finance

Expanding Gravity as a bridge to all industrial chains, creating a universal bridging integration suite.

(4) Expanding more business in the United States

Waves established a U.S. company, Waves Labs, in the first quarter of 2022, headquartered in Miami. The team is currently recruiting experienced leaders in engineering, business development, and marketing.

In version 2.0, Waves announced that the U.S. is a key market for driving large-scale adoption in 2022. The main KPI is the number of products built on Waves by teams from the U.S.

This spring, a $150 million fund and an incubation program will be announced to meet this demand and continue to develop and cultivate talent and market opportunities. Additionally, an independent DeFi fund will be launched in the first quarter of 2022 to invest in selected Waves-based DeFi products.

Conclusion

The Waves ecosystem is vast, but as with the positioning of the Waves public chain, it primarily focuses on financial and financial-related applications.

In terms of product composition, the Waves ecosystem connects DeFi applications like Swop.fi to games like Waves Ducks using the stablecoin USDN, while also having its own Gravity oracle to achieve stablecoin exchange rate readings, cross-chain data interactions, and off-chain data on-chain functionalities. In terms of product interaction, Waves Exchanges and DeFi applications are interconnected, providing a relatively smooth ecosystem experience.

In terms of business choices, the Waves public chain serves the general consumer, while WavesEnterprise serves enterprises and governments, providing various demand scenarios for the Waves ecosystem, which is an advantage not commonly found in other public chains.

From the perspective of public chains, from DEX to DeFi to stablecoins, Waves has been keeping up with hot technologies and possesses certain advantages in technology. These technological accumulations can enhance other applications within the ecosystem. For instance, Waves has years of accumulated cross-chain technology, so USDN and NSBT tokens can be used not only on the Waves public chain but also in ecosystems like Ethereum and the Binance Smart Chain.

In terms of stablecoins, the USDN algorithmic mechanism design, enhanced by the Neutrino protocol, is relatively complete, but the current market value ranking of USDN still needs improvement. As mentioned above, the influence of USDN on Waves is mutual; as the applications within the Waves ecosystem become broader and the narrative of stablecoins becomes more substantial, the layout of USDN will attract more capital to Waves, and the consensus on USDN and Waves will become stronger.