CRYPTO GLOSSARY
CRYPTO GLOSSARY
USDN
Dec 22,2022
4 minute read

USDN Resolution Plan

Over the last few weeks, USDN has deviated significantly from its parity with the USD. This has largely been spurred by an increasing lack of confidence in the stable asset and fear, uncertainty, and doubt created by false communications from centralized crypto exchanges. We are today revealing Neutrino’s plan to prioritize recapitalization of USDN and restore confidence for arbitrageurs to participate in maintaining the USDN peg.  

The USDN reserves are a key point of confidence; reserves promise users that they can always redeem their USDN for the WAVES held as backing. As the backing ratio - the value of reserves vs the value of the circulating supply - has decreased, so too has the confidence that the situation will reach a resolution. 

The Neutrino team proposes the following solutions to increase USDN reserves and stabilize its peg.

The proposal

  1. Add support for Waves Ecosystem tokens to be deposited as backing in the Neutrino contract.
  2. The Waves Ecosystem teams (WX, VIRES, SWOP, EGG, and WEST) will donate $15 million in total of each project's token directly to the Neutrino backing.
  3. Reactivate Swaps for Neutrino
  4. Offer SURF and NSBT holders an opportunity to receive Neutrino swap fees from all Waves ecosystem tokens including: WX, VIRES, SWOP, EGG, and WEST.
  5. Restart unconditional vesting for users with USDN locked in Vires Finance according to the daily withdrawal limits.

Each item proposed is designed to make a specific impact to help resolve USDN’s depeg from USD. Next, we unpack each one.

Enabling Ecosystem tokens as backing

  • What will this do: Adding support for deposits of WX, VIRES, SWOP, EGG, and WEST as collateral for USDN will make USDN an index fund for the Waves ecosystem.
  • Why is this important: To diversify and increase the collateralization of USDN and allow USDN to benefit from the price appreciation of Waves Ecosystem tokens. The plan will make USDN related to the value of the Waves ecosystem tokens, and while the value will aim to be close to $1, it will more freely fluctuate above and below based on the value of its reserves.

Waves teams to donate 15 million in ecosystem tokens

  • What this will do: The addition of 15 million in collateral will instantly improve the ratio of the value of the USDN reserves backing the total circulating supply to 20%
  • Why is this important: It’s imperative to quarantine the contagion that the weak USDN price is spreading across Waves ecosystem projects. All the teams want to help and have committed to do so if this proposal was to go ahead.
     

Neutrino reactivating swaps

  • What this will do: Give all NSBT and SURF stakers the ability to make swaps between USDN and any Waves ecosystem token. USDN swaps would be redeemed proportionally into each token held in reserves. This would re-enable the USDN arbitrage opportunity for traders.
  • Why is this important: Throughout the liquidity crisis on Waves, USDN swaps have been enabled; only recently, they had to be disabled to prevent further damage to the backing ratio.

    Without Swap functionality enabled, traders could not benefit from the hardcoded contract price of $1 for USDN. Reactivating swaps will restore an extremely lucrative arbitrage opportunity for traders, which has historically been a highly effective mechanism for maintaining USDN’s peg to a dollar.

SURF and NSBT holders will receive income from swap fees in ecosystem tokens

  • What this will do: SURF and NSBT currently share in the income generated by swap fees on the protocol. After this proposal, they would receive income from all the ecosystem tokens held in the reserves.
  • Why is this important: SURF and NSBT are core to the Neutrino protocol; they are built to provide incentives for users to recapitalize the reserves. By increasing the diversity of incentives, we can speed up the recapitalization of reserves.

Restart USDN vesting for Vires Finance users

  • What this will do: Restart vesting based on the outlined daily limits for Vires Finance users but independent of the adaptive vesting measures outlined here. 
  • Why is this important: Adaptive vesting prevented users from withdrawing USDN if it’s the price was depegged. However, when Swaps on Neutrino were disabled, this prevented arbitrageurs from maintaining the peg, which limited most Vires Finance users to ONLY claiming a very small amount of USDN each day. After this proposal, vesters can claim USDN regardless of its price.

Roadmap

  1. 22nd Dec - 26th Dec
    Neutrino community voting for approval of resolution plan (multi-collateral ecosystem tokens + new swap mechanic)
  2. 27th Dec - 5th Jan
    Developer Implementation
  3. 6th Jan - 10th Jan
    Voting to update contracts and UI

The total impact of these five proposed changes will effectively make USDN an index fund for all Waves ecosystem tokens. USDN’s value will be explicitly linked to the value of the basket of Waves ecosystem token collateral, each of which is an asset with the potential to appreciate. At the same time, swaps will be re-enabled, allowing arbitrage traders to profit off of moves in USDN price and restoring what has historically been the most powerful antidote to previous depegs.