Over the weekend, a spat erupted between Waves blockchain founder Sasha Ivanov and trading firm Alameda Research.
Ivanov alleges underhanded dealings, while Alameda seems to imply that he simply took advantage of the high funding rates to make money. But regardless of what actually happened, the dispute has led to a controversial proposal within the Waves blockchain community – one designed to hurt Alameda, but which could also have a big impact on anyone trading the native token. of the project.
At the same time, a stablecoin believed to be pegged to the WAVES token has lost its peg, raising further concerns that things are not right in the Waves community.
How it all began
The outcry began when Ivanov accused Alameda of manipulating the price of WAVES.
Ivanov claimed that Alameda had borrowed funds on the Vires Finance protocol to sell WAVES and further accused the company of trying to campaign against the token in order to encourage other merchants to sell it, thereby bolstering the assumed short position.
FTX CEO Sam Bankman-Fried — who founded Alameda in 2017 and served as its CEO until October 2021 — denied the chargescalling them a conspiracy theory.
We have reached out to Waves and Alameda and will update this article if we receive a response.
What Alameda was probably doing
Although Alameda didn’t particularly weigh in on the discussion, it did reveal a clue that could explain what was going on.
“People should really watch WAVES funding rates right now,” Alameda co-CEO Sam Trabucco tweeted.
Funding rates are the amount of money paid out to traders who take long or short positions. Essentially, if the majority of participants are long, they pay a small portion of their open trades to those who are short. When this happens, funding rates can spike and be a potential source of money for those shorting the token. This mechanism is used to keep the price of the perpetual token in line with the spot price.
In this case, the funding rates were negative. It is therefore possible that Alameda took a long position in order to take advantage of the high negative rates. Still, a common strategy here is to hedge that position by selling the token in the spot market. If Alameda did this, it would have allowed them to collect the return on funding rates, while minimizing risk.
“So if you’re long perp, short spot, you’re collecting the yield/funding,” explained Larry Cermak, vice president of research at The Block.
A controversial proposal
Regardless of what happened, a new proposition was made in the Waves community – supported by Ivanov – which aims Alameda.
The proposal asks the community to vote on a 0.1% liquidation rate for everyone who has borrowed WAVES and USDN – an algorithmic stablecoin known as Neutrino USD which is backed by the WAVES token – on Vires Finance, the largest lending protocol on the Waves blockchain. This would target Alameda funds, according to Ivanov’s investigation.
If this passes, Alameda is likely to have to buy 650,000 WAVES ($30 million) to maintain its position, according to estimates from The Block Research.
In Ivanov’s eyes, the proposal is enough to liquidate everyone shorting WAVES. The very low closeout rate of 0.1% will force short sellers to unwind their trades. With the proposed threshold, anyone who has taken out a loan on Vires will see their position closed immediately as soon as the price of WAVES moves slightly.
“Let’s protect the ecosystem from the waves of greed”, Ivanov commented on the proposal, referring to Alameda’s alleged short trade on WAVES.
But soon, the proposal faced criticism, mostly from the blockchain’s own users. From the community forum, many underline that, if adopted, the proposal will be detrimental to the users of Vires Finance who will bear the brunt of the liquidations.
“It’s a terrible proposition. Just because we don’t like that a party took a significant short position doesn’t mean we should change the protocol to target them back,” noted a member of the community.
“This proposal goes against DeFi ethics, is incredibly mean-spirited, and undermines the credible long-term neutrality of Vires,” noted another one.
Vote on the proposal begins on April 5 and will last for five days.
A troubled stablecoin
To make matters worse, the USDN token lost its peg to the US dollar.
The USDN began to lose its peg to the dollar around 5:30 p.m. UTC on April 3, before collapsing significantly on April 4, just before noon UTC time. At its lowest point, it fell to just 82 cents.
Part of the reason behind this appears to be a change made two weeks ago which means only traders who have large positions in NSBT – Neutrino’s governance token – can trade directly between WAVES and USDN. This means that only a few entities are able to trade large amounts of tokens directly with each other, without using liquidity on exchanges.
The other key element seems to be the uncertainty over the recent proposal that has divided the Waves community.
When asked why the token lost its Twitter anchor, Ivanov replied: “Bad [fear, uncertainty and doubt]. someone will make a lot of money out of it. and it’s not us, of course.
In the meantime, the stablecoin has recovered somewhat – up to $0.87 – but it is not out of the woods yet.
© 2022 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended for use as legal, tax, investment, financial or other advice.