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Waves Labs
Dec 19,2022
5 minutes read

Futures Data Shows DAXA Warning Harmed Waves More Than USDN Ever Could

Recently, the WAVES token was flagged by the South Korean based Digital asset collective DAXA as being fundamentally unstable. This prompted the South Korean exchange Upbit to suspend WAVES deposits on December 8th at 9 AM UTC. 

The Waves team responded to the baseless allegations quickly and since then some exchanges have begun to roll back their restrictions

Without fact-checking DAXA’s warning, some Centralized Exchanges (CEXs) acted rashly, flagging WAVES as dangerous to trade and suspending new deposits on their platforms. By halting deposits, CEX’s like Upbit signalled to the market that the WAVES token was risky, when in fact, nothing about it had changed.

This decision limited the organic liquidity of WAVES, which in turn created more unfounded uncertainty and fear in the market. Amid these chaotic and confusing messages, opportunistic traders started to aggressively short the WAVES token, creating even more volatility and unstable market conditions. 

Now let’s examine the evidence that shows the consequences of DAXA’s brash message.

Tracing the Source of Opportunistic Intent


The chart above shows a dramatic increase in Open Interest (OI) on WAVES across many different CEX’s immediately following the Upbit announcement. Open Interest is the total amount (in dollars) that traders have opened, in either short or long positions on derivatives contracts across the entire industry.

On December 8th, WAVES derivatives saw a 176% increase in OI from a stable historical baseline of $22.6M in moments prior. Within eight hours, OI rose to $62.5M – a level not seen since early August. Open Interest is a result of traders using collateral to go short or long on an asset and has an out-sized impact on price volatility in times of low liquidity. Right now this low liquidity environment is true for all of crypto but was intensified for WAVES thanks to Upbit’s erroneous warning.


Further evidence suggests that this OI is almost entirely traders shorting WAVES. In crypto, futures contracts balance risk by charging a small fee to derivatives traders depending on the distribution of long and short positions. This fee is called the Funding Rate. The more shorts the more positive the funding rate and the more longs the more negative the funding rate. 

In this case, short sellers were paying 1.45% every eight hours to short WAVES for an extended period of time. This is the equivalent of paying 1590% APR a year to short.

Risk, Due Diligence, and Responsibility

Upbit’s false warning about WAVES triggered fear, uncertainty and doubt in the market. Their warning, based on a fundamental misunderstanding of a token they decided to list, created intense and unwarranted sell pressure causing many of their customers to realize losses. 

Unfortunately, despite their desire to protect their customers, Upbit’s lack of rigor and due diligence has effectively harmed both their customers and the Waves ecosystem. CEX’s today have essentially become unregulated gatekeepers and opaque rule-makers whose official communications have significant impacts on market conditions.

Although the Waves team responded within eleven hours to correct Upbit’s understanding, opportunistic short traders used the confusion and uncertainty to aggressively short sell. Due to the low levels of volume and liquidity across the crypto markets, this aggressive short selling spiked the volatility of WAVES.

December 13th saw a high percentage of short accounts being liquidated. In this 24 hour period, $550K of short positions were automatically closed by CEXs to limit further losses. Centralized exchanges allow users to ‘leverage trade,’ or borrow money to trade with positions sizes that are larger than the amount of collateral a trader owns. Leverage trading is extremely risky, and reacting to volatility created in highly leveraged markets after the fact, is riskier still.

If CEX’s like Upbit want to protect their customers from unknowingly taking on extreme levels of risk, it is their responsibility to do everything in their power to ensure they communicate accurate information about the assets they list, and to fully understand the technology behind all the tokens they provide liquidity for.

3 Ways DEXs Outcompete CEXs

CEXs have come under massive scrutiny in recent months for good reason as the FTX fraud caused millions of investors to lose their crypto. The industry has been extremely sensitive to uncertainty leading to mass withdrawals and widespread speculation of token solvency. 

At a time like this, it’s more important than ever for CEX’s to take their responsibility seriously, and if they are not up to the task, the market will naturally find alternatives. The most readily available alternative is of course, for investors to migrate their assets to decentralized exchanges (DEXs). The advantages of DEX are significant, especially in light of the current state of centralized exchanges. Some of the major benefits of DEXs include:

  • Investors can custody their own assets, preventing fear induced bankruns.
  • Trading pairs are permissionless and uncensorable. If market participants want access to their stake, they can have it. 
  • Investors can make decisions for themselves based on the free information available, there is no centralized entity whose word becomes law.

One week following Upbit’s incorrect warning, funding rates have returned to historical levels. Despite this, millions in OI positions remain open, with short traders having already paid ~$1.7 million in fees alone to maintain their positions. This is extremely uncommon and aggressive trading considering that no fundamental change has occurred in the Waves blockchain and ecosystem.

Given the amount of outstanding OI, we want to caution WAVES holders, that it is reasonable to expect further price volatility in the near term as short traders deleverage. Once the market has some time to heal and recover from Upbit’s unfortunate oversight, prices will stabilize.


Find the Signal, Ignore the Noise

Upbit’s mistaken announcement generated a lot of public interest. In it’s wake, social media activity related to the WAVES token surged – amplifying the negative impact of the initial misunderstanding. 

When wrong information is shared, engagement and noise tend to spike amid the confusion and uncertainty, and when the truth comes to light, the same level of attention is often not reached.

As the data above shows, unregulated and open crypto markets will always be subject to opportunistic traders looking to capitalize on events that sow confusion and doubt. It is important, for participants' own safety, to think critically and rationally about the information presented – even, and especially from CEXs.

Waves’s mission has always been to build the most decentralized blockchain ecosystem in the world, that has not changed despite the price volatility recently experienced as a result of Upbit’s careless warning.

As always, if you have any questions at all about the WAVES token, team or ecosystem, please reach out to our communities on Telegram, Twitter and Discord (links below). We are here and waiting to say hello.