A lot happened in WAVES coin space, such as attacking and threatening to sue short-sellers and pumping coins artificially causing crashing and depegging of the WAVES/USDN.
Waves (WAVES) (WAVES-USD) cryptocurrency is currently on a bearish trend, having fallen 76.18% during the last 30 days. On Saturday, 02 May, Waves (WAVES) (WAVES-USD) is trading at $13.12.
Waves, a layer 1 or base blockchain for smart contracts, is undergoing a complex and increasingly bitter drama. In the past few days, neutrino USD (USDN), a stable coin anchored to the dollar, has experienced a dramatic break in its dollar peg. This Ethereum analog has a smart contract and decentralized finance functionality. A broken peg threatens the entire system, as the neutrino stablecoin is widely considered the main utility of the Waves blockchain.
While the reasons behind that chaos are disputed, what’s most notable is the Waves team’s seemingly unprecedented response. Announcing a proposed system change, founder Sasha Ivanov claims that short sellers are fueling the chaos on the Waves decentralized exchange (DEX), Vires Finance.
Traders think that outside of Vires Finance, it is nearly impossible to borrow WAVES because it is a relatively thinly traded asset of little interest to institutions like hedge funds. It is essential to borrow an asset to short it or bet on its decline. Waves’ proposal would, in essence, make it very difficult for anyone to short WAVES.
Short Sellers Are to Blame
Waves may be the first crypto project to use the same rhetorical strategy as a long list of troubled, traditional, publicly traded companies. The companies attacking short-sellers ultimately turn out to be fraudsters. One of my favorite recent examples was Nikola, a supposed electric vehicle manufacturer that briefly threatened to sue short-sellers before eventually admitting to having faked its product demo.
Famously, Enron CEO Ken Lay blamed short-sellers for the company’s problems in 2006, while on trial for overseeing the largest corporate fraud in history. Finance observers often view blaming shorts as the last desperate deflection of a failed project in denial.
In reality, shorts are structurally incentivized to only attack for very good reasons, so anti-short rhetoric is common among unstable or dishonest projects. It’s partly because shorting is extremely risky, with potentially uncapped losses if the value of an asset being shorted increases. It’s not something a serious trader or fund does lightly, and it’s often a move made by traders who think they’re seeing something that others don’t.
Thus, shorts often engage in public campaigns to spread awareness about their “short thesis,” or the reason they believe an asset will fall. A new light is cast on Ivanov’s claims that Alameda Research, a sister company of the FTX exchange, was behind a “FUD campaign”. A public short campaign by a firm such as Alameda would be a sell signal to any sane trader, and not mere “fear, uncertainty, and doubt.”
However, it’s not clear whether Alameda is engaged in a WAVES short on its own, much less a public campaign around it. Ivanov claimed on Twitter that a $30 million loan from WAVES to Vires can be linked to Alameda. The Vires representative declined to clarify the source of that information, and some argue that Ivanov is doxing a user.
While some believe these loans represent borrowing on behalf of Alameda clients rather than the firm’s proprietary trades, others argue otherwise. Alameda founder Sam Bankman-Fried on Twitter dismissed allegations of coordinated “FUD” publicity campaigns as an “obv bull**** conspiracy theory.” Alameda declined to confirm or deny whether it has or has held short positions in Waves.
The shorting of WAVES would not be a particularly surprising or personally motivated move by a trading firm. Waves’ financial decisions had been criticized, and clear-eyed predictions of the token’s crash were made in the days before the current drama.
Artificially Pumping Neutrino Stablecoin
As of March 31, a pseudonymous Twitter user known as 0xHamz called Waves “the biggest Ponzi scheme in crypto,” claiming that the Waves team was printing its neutrino stablecoin and using it to artificially pump the WAVES token. WAVES’ price had just spiked to nearly double at that time. According to 0xHamz, the moves would result in the crash of the WAVES token as well as the depegging of USDN.
After dropping as low as 76 cents on the dollar in recent days, the neutrino stablecoin rebounded to 91 cents on Wednesday morning. Neutrino is one of the primary use cases for the WAVES network and token, with almost $1 billion of the stablecoin in circulation against WAVES’ $2.7 billion market capitalization. Therefore, USDN de-pegging could pose an existential threat to the entire Waves ecosystem, and the WAVES token has fallen below its pre-pump level.
Waves’ USDN Stablecoin Loses Peg, Drops 15% Amid Manipulation Scare
According to 0xHamz, Ivanov moved a massive $300 million pile of WAVES tokens to Binance personally, saying the move “could be an imminent dump.” In a Twitter Space organized by Waves on April 5, 0xHamz was invited to address his allegations directly with Ivanov.
He refused to publicly refute the claims that he is dumping WAVES tokens, instead claiming 0xHamz was not a real person and making vague threats against the critic. “That’s bullshit!” he said. I think you’re a troll… I’m not sure if your voice is generated by AI, said Ivanov. He offered to meet with you privately. My friend, I can show you everything, but you don’t do your homework. Your work is terrible. These are unfounded accusations. “You can have some legal problems if you are a real person, so I suggest you think carefully before doing anything.”
Ivanov probably realized as much when he insisted that “I’m not making threats” a few minutes later. CEOs who resort to speaking in such menacing ways are often not trustworthy stewards.
Blocking Short-Sellers Proposal
However, the proposal to cut off short-sellers remains the most interesting part of the story. Ivanov has endorsed the proposal, which opened for voting on April 5 and will last until April 10.
Many have argued that it is at worst contrary to the spirit of crypto because it prohibits legitimate economic activity. And while blocking short-sellers could boost WAVES’ price in the short term, experts say the proposal is likely to hurt WAVES in the long run.
Crypto asset management firm Arca’s Jeff Dorman explains that the chaos may have aggravated short pressure rather than eased it. Institutions and hedge funds that have no interest in holding WAVES on their own are almost assuredly scrambling to borrow from WAVES holders to enable short, but they may be unsuccessful. The negative funding rate [for WAVES] of FTX, for example, indicates how little borrowing there is, since those who wish to short have resorted to selling perpetual futures.
Bears are willing to buy derivative contracts that profit from the asset’s eventual decline because it is so hard to find actual WAVES tokens to short. By putting up a shield against shorts, WAVES might be able to limit such activity, but it wouldn’t be a sure thing.
Dorman says that interfering with free markets has other long-term consequences, including reduced liquidity. This would make long-term holders more concerned and could negatively affect the Waves price.
WAVES Price Crashed by 50% in One Week
The weakening of technical and fundamental factors has caused Waves (WAVES) coin to lose half its value on April 7, 2022.
Waves dropped from nearly $64 on March 31 to around $27.50 on April 7 – a 55% decline. Additionally, the WAVES/USD pair broke below a key support confluence, hinting at further correction.
In particular, the confluence comprises WAVES’ 50-day exponential moving average (50-day EMA; the red wave) and the 61.8% Fibonacci retracement line — drawn from $64-swing high to $8.34-swing low.
Due to its historical relevance as a price floor in October 2021 and March 2022, $25 acted as interim support due to WAVES’ path of least resistance currently being to the downside. Waves Platform was compared to a Ponzi scheme in a Twitter thread posted by user 0xHamZ, which claims Waves’ team inflated the price by over 650% from February to March. 0xHamZ’s accusations prompted Neutrino USD, a “stablecoin” backed by WAVES reserves, to lose its U.S. dollar peg, further dampening market sentiment.
Jolyon Horsfall, co-CEO of nonfungible token (NFT) prediction platform SparkWorld, cautioned: “If the token is to be revived and redirected on its ambitious path, Sasha Ivanov will need to step up.”
WAVES would benefit from putting up a shield against shorts, but it’s certainly not a sure thing. The long-term effects of interfering with free markets also include reducing liquidity. As a result, long-term holders may become more concerned, which could negatively impact Waves’s price.