Analysis of the Waves Project Farce: The Greedy Nature of a Ponzi Scheme

Why Ponzi Scheme?

From @0xHamz: WAVES is the biggest Ponzi scheme in crypto.

It did so by borrowing USDC at a 35% interest rate to buy its own tokens, causing the so-called superficial price surge.

But this system requires the continued growth of WAVES market value to maintain its system stability - the only outcome for WAVES is collapse, and USDN (Waves' stablecoin) will break away from it.

Relationship between $WAVES and $USDN

• $WAVES is a Layer-1 blockchain, and its main use case is minting USDN, its native stablecoin . You can compare WAVE to LUNA/MKR, and USDN to UST/DAI.

  
  

• WAVES market cap increased 6x in 2 months The initial price catalyst was the hype around WAVES becoming the “Russian Ethereum” , and despite minimal KPI traction - it performed significantly better than ETH.

• WAVES needs to keep increasing its market cap to issue more USDN. The health of the ecosystem can be judged by the ratio of WAVESMktCap/USDN, which tells us how much USDN the system can issue. We can see (as shown below) that once the Backing ratio reaches 2.5x, the supply of USDN will decrease - which is the minimum target.

• Due to the surge in prices, WAVES has greatly increased its ability to issue USDN; assuming the target is 2.5 times - WAVES can issue an additional $1,380 USDN; then the USDN yield based on this target will be 5.4%, while the supply rate of USDC/USDT on AAVE is only 3.5%.

• Recently, we have witnessed the fastest minting speed in USDN history: in the past 4 weeks, USDN has risen from US$475 to US$875; it has grown by 85% against the trend in a market where DAI is falling. Why do people want to hold USDN so much?

• USDN is backed by WAVES. The native staking rate of WAVES is 3.13%, and the USDN yield = WAVES native staking rate x backing ratio; the current USDN yield is 3.31%*6.60x=21.8%, but as more USDN is issued - the yield will decrease.

  
  In order to keep the yield from falling, the WAVES market cap needs to continue to grow. Once the backing starts to decline, the USDN yield will fall: 21.8% at 6.60x backing, 5.4% at 2.5x.

The project's secret operation

Here’s how the WAVES team used leverage to engineer a massive supply crunch, all fully traceable on-chain:

• Deposit USDN to Vires

• Borrow USDC on Vires

• Transfer USDC to Binance

• Buy WAVES with USDC

• Convert WAVES to USDN

• Repeating the cycle

Vires is the AAVE equivalent on the WAVES protocol. It holds 70% of all USDN on the platform ($607/$875 = 70%).

It also allows USDC/USDT lending. The current USDC supply rate is 30%, which is the largest yield relative to any other money market protocol.

USDC/USDT borrowing has gone crazy in the past 2 months. Borrowing rates exceed what anyone else pays on any other chain - and who is borrowing and why?

The truth comes to light

• WAVES has been borrowing USDC/T to exchange for USDN

• WAVES sends USDC/T to Binance and buys WAVES

• Then transfer the WAVES to their wallet and mint more USDN

• Provide USDN on http://Vires.Finance to be able to borrow more USDC/T

WAVES must attract USDC/T to VIRES in order to borrow newly issued USDN.

No one else will lend USDN, so WAVES must offer above-market prices to incentivize USDC/T to enter the platform. No hard currency asset channel = no leverage.

WAVES has a $100mm supply of which 85% is staked, which leaves us with $16mm of “tradable” WAVES.

Exchanges need working capital, and given that some holders won't sell, assuming 30% = $10.5mm, it's easy for projects to manipulate your mkt cap when there's 10.5% of tradable supply.

WAVES can issue another $1,380mm of USDN before violating its target backing. $1,380mm is struggling to catch up with the 10.5mm uncollateralized supply, which means WAVES can pay $131.43/token. The WAVES Ponzi scheme will continue to grow before shrinking.

But for this to happen, someone needs to deposit USDC into Vires.

But no one will use USDN - that's why WAVES deposits USDN to borrow USDC. Therefore WAVES is limited by the USDC supply pool.

Speed ​​​​death

Once USDN reaches its target backing asset ratio, USDN issuance will eventually taper off. At this point, there will no longer be programmatic WAVES purchases, and USDN and WAVES will rapidly die out.

If WAVES price drops enough - WAVE Smktcap could fall below outstanding USDN, meaning USDN becomes insolvent and depegs.

USDC shorts on Vires could liquidate $607 of the $875 in outstanding USDN, which would be apocalyptic.

This is a Ponzi scheme precisely because it is supported by borrowed money: there is no normal on-chain activity, and we can only see the number of transactions over a period of time.

Every 2 days, from 10pm to 12am EST, the WAVES team will start their bloody operation:

• Issuing USDN

• Borrow USDC

• Buy WAVES and create a price surge

This high volume/price action is continually enticing traders to go long, and Korean exchanges have been consistently seeing the highest volume for WAVES. A Ponzi scheme is unfolding.

WAVES does not have any ecological traction of its own. The price of WAVES was initially pushed up based on the gimmick of "Russian ETH". The WAVES team used this price advantage to issue USDN and borrow USDC.