As an independent US-based organization - Waves Labs team has performed a thorough risk assessment of the USDN depeg situation. In particular, we have looked at the risk of USDN depeg significantly affecting its reserve asset, WAVES.

In summary:

1. The amount of WAVES in the contract is not significant enough to impact price - even in the worst-case scenario where all WAVES were drained.
2. There is no inflation or new WAVES tokens created by Neutrino - at any point.
3. There is no way to drain the contract in a single day or entirely, so any draining to sell WAVES would be done over an extended period, and could easily be handled by the market demand.

For these reasons, we believe there is a very low risk of USDN depeg impacting the WAVES token price.

There is principally only one way that USDN can directly affect the price of WAVES: Redemption. Redemption is when users withdraw the WAVES from the Neutrino reserves. At that point, if they were to sell considerable amounts on the market it may in theory affect the price of WAVES.

Below we identify the reasons why the risk of this impacting WAVES price is negligible:

Firstly, the WAVES held in the smart contract is only 4.2% of the total WAVES supply:

• Total Waves supply = 109,982,000 WAVES [1] 
• Neutrino WAVES Reserves = 4,541,000 WAVES[2] 
• Neutrino reserves represent 4.2% of the total supply.

All three of the top centralized exchanges by trading volume for WAVES have that much daily demand as of 29/11/2022. With the total daily trading volume across all DEX and CEX being 10x the demand needed to absorb the selling pressure from USDN reserves being drained.

Secondly, the fundamental mechanism of USDN is based on using WAVES as collateral. USDN has NO ROLE in the issuance of WAVES.

The role of Waves in USDN:

1. WAVES is used to issue new USDN when deposited as collateral.
2. WAVES is the reserve asset that collateralizes USDN.
3. WAVES used to issue USDN are always locked in the Neutrino contract, not burned.
4. WAVES can be redeemed from the contract, which burns USDN - however, only based on the daily limits and only by Neutrino governance token holders.
5. No new WAVES is ever issued by Neutrino, at any point.

Therefore while USDN has exposure to Waves Price. Waves has minimal exposure to USDN price.

Thirdly, it is impossible to drain the entire reserves.

This is due to:

1. The daily swap limits set on Neutrino. You can see the swap limits here
2. Swap limits are based on users holding locked NSBT (the governance token for Neutrino). The amount of USDN you can burn to withdraw WAVES is directly proportional to the amount of locked NSBT you have.
3. Neutrino has a backing rate protection mechanism that blocks WAVES from being withdrawn when the backing rate is below 10%.
4. Meaning only long-term investors in Neutrino can withdraw WAVES from the contract, and only a certain amount each day. Which reduces significantly when Backing Rate is below 10%.