The solution to usdn backing


The collateralization of USDN is well known by now to be an existential threat for the entire Waves Ecosystem.


When BR is low, all Waves Nodes will mint (inflation) additional WAVES, above and beyond their regular compensation (which they get to keep fully). The additional WAVES will be added to the USDN backing.

The amount printed will be inversely related to BR along the following lines:

  • If BR is extremely low, e.g., 40%, then print more WAVES at an aggregate pace of 1% per day. E.g., if there are 50ml WAVES in the backing, print 500’000 WAVES per day and add them to the backing.

  • If BR is low, e.g., 80%, print WAVES at an aggregate pace of 0.5% per day. E.g., if there are 50ml WAVES in the backing, print 250’000 WAVES per day and add them to the backing.

  • If BR is healthy, e.g., 150%, then stop printing.


While obviously this is dilutive to WAVES value, it is the optimal way to increase USDN capitalization. When BR is low, people become scared of the solvency of USDN, and since the entire ecosystem is denominated in USDN, then people sell USDN, this puts sell pressure on WAVES, which makes the problem worse. When the problem persists, the entire ecosystem dissipates: Waves Exchange transactions slow down, capital leaves Vires and the Waves Pool, etc, … which makes the problem terminal.

Inflating the WAVES supply is therefore applied at the most appropriate time - when the system is at greatest risk - and not when it’s healthy.

Furthermore, the newly created WAVES are locked up, and so the inflation is not dumped on the market to create sell pressure like in LUNA’s case.

The first step is to accept the reality that algorithmic stablecoins are a bad idea that will never work. The Vires whale showed how foolish it was to allow so much USDN to be unlocked. Try to undo the damage as much as possible. Start by not allowing the smart contract to unlock any more USDN. Again, NO NEW USDN, FOREVER. Allow only swapping the outstanding USDN into Waves. If or when the Waves reserve amount reaches zero, create 100,000 new Waves for the reserve. The process may repeat, and there will be some price pressure on Waves. But the eventual goal is to gradually get the USDN supply to a small enough amount that it is no longer a problem for the ecosystem. And then hopefully you will have learned your lesson. No more algorithmic stablecoins.