DeFi technologies continue to lead blockchain-based innovation providing alternatives to the traditional financial system for equities, bonds and derivatives. Recently, FTX listed crypto trading pairs to blue-chip stocks such as Amazon, Apple and Tesla, while other players are using smart contracts to innovate on borrowing & lending, insurance, options and asset management.
An area of traditional finance that has lagged in innovation in the DeFi world is Forex, or the seamless exchange of global fiat currencies worldwide. Originally pioneered by Ripple (XRP), efficient forex exchange continues to be in demand by remittance providers and global businesses, particularly those looking to hedge currency risk for their import and export cash flows. Additional new demand is created in emerging markets where local currencies continue to experience instability and demand for “stable” currencies such as the USD, EUR or CNY is at an all time high.
One company rising to this challenge is Waves protocol. Launched in 2016, Waves was intended as an improvement on past blockchain experiments, with a mission of creating a “blockchain for the people,” or seamless integration of blockchain into people’s daily lives and removal of barriers through creation of easy-to-use decentralized applications.
Fast forward to 2020, fragmentation and network isolation is more prevalent than ever in the blockchain industry. Waves tackled this dissonance by creating interoperability solutions through for exchanges, tokenized assets, stablecoins and loyalty tokens, finally landing on the Neutrino protocol as its flagship DeFi product. Neutrino aims to be a plug-and-play tool for the creation of DeFi projects, facilitating the issue of stablecoins within those projects. Neutrino USD (USDN) is the protocol’s first algorithmic stablecoin pegged to the US dollar, providing its holders with a staking option, similar to that of Synthetix and Maker DAO.
The former USSR is known for producing some of the biggest crypto entrepreneurs from Pavel Durov of Telegram, Sergey Nazatov of Chainlink, Stani Kulenic from Aave, Alex Machinsky of Celcius. to Russian-Canadian creator of Ethereum Vitalik Buterin. This trend is largely driven by a realization that cryptocurrencies can offer a sovereign alternative to the ever inflating Ruble, cumbersome oversight of the traditional financial system by the Russian government and the region’s unstable banking system.
This week I had the pleasure of sitting down with Sasha Ivanov, Founder of Waves to chat about his journey into the cryptocurrency space and his vision for Waves.
Sasha Ivanov graduated from Moscow State University’s theoretical physics department, before programming trading software for international forex markets, making use of artificial neural networks, and working on neural network trading systems for banks. Sasha took an interest in digital currencies in 2013 and as an early adopter, saw the potential for blockchain to serve the financial industry. In 2016, he founded Waves with the mission of making blockchain more accessible to everyday users.
Tatiana Koffman: Thanks for joining me today Sasha. Let’s start with – how did you get into the cryptocurrency space?
Sasha Ivanov: Thanks for having me, Tatiana!
Upon graduation, I worked at various hedge funds involved in financial strategies. Cryptocurrencies had just arrived, and traditional institutions were beginning to look into that nascent space, but no one really took crypto seriously. I got interested in blockchain – probably, because my training as a physicist and my tech frame of mind demanded a little more than just endless mathematics in finance analysis. I wanted to “touch” the technology. So, I ended up in the community of NXT protocol in 2013, one of the first proof-of-stake protocols created. That technology completely changed my view of reality. I realized that, thanks to blockchain, it was now possible to create totally new financial models that were hardly imaginable in traditional finance, that would be reliable at the tech and organizational level – trustless models. A technological consensus could be replaced by a social consensus. All that stirred my imagination, and I felt an influx of energy and ideas, as images of various finance and non-finance tools immediately arrived in my head.
At the time, existing blockchains were faulty in basically all respects, from poor usability and limited interfaces to the lack of smoothness in performing the simplest operations that are now considered basic. I wanted to build a more advanced platform that would be accessible even to people who don’t have tech skills. And I’ve been doing it to this day.
Tatiana Koffman: How would you describe Waves for those unfamiliar with your product?
Sasha Ivanov: Currently, Waves Tech is an ecosystem of blockchain solutions and products, with a focus on inter-chain decentralized finance (InDeFi). We leverage three blockchain protocols: Waves an open-source protocol designed to speed up the adoption of DeFi applications and other dApp use cases; Neutrino, an algorithmic price-stable multi-asset protocol enabling the creation of stablecoins tied to real-world assets; and Gravity, a decentralized cross-chain and oracle network based on a blockchain-agnostic protocol for communication between blockchains and with the outside world, working with native token economies.
Tatiana Koffman: How did you come up with the idea behind the Neutrino?
Sasha Ivanov: In the late 2018 and early 2019, crypto holders wanted to protect their capital in a declining market. That time’s negative market trends also boosted investors’ interest in algorithmic stablecoins as an instrument allowing them to wait out a bear market period.
That’s how the concept of Neutrino USD arrived. First, users were able to manage all funds locked on the Neutrino smart contract in the form of USDN, protecting their capital from the devaluation of crypto. Second, because Waves is a stakeable token, they collected an extra revenue. Third, USDN’s economics has a built-in internal governance token, the Neutrino token or NSBT, which is a leverage trade instrument, while all funds are stored in USDN, offering holders a passive income. This is the foundation of the staking mechanism on the Waves platform – all users can stake out their Waves tokens to nodes at a guaranteed APY of 6%.
Subsequently, assets pegged to several other major currencies were launched, such as EURN (Euro), GBPN (UK), CNYN (China) and JPYN (Japan), but also specific local assets, representing key Waves communities, such as TRYN (Turkey), UAHN (Ukraine) NGNN (Nigeria), BRLN (Brazil) and RUBN (Russia). Leveraging the Waves and Neutrino protocols’ features, we were able to establish DeFo, a Decentralized Forex, with blockchain at its heart, but daily needs of the global community in mind.
Tatiana Koffman: With so many stablecoins currently in the market, what is the benefit of using USDN versus some of the already established brands like USDT and USDC?
Sasha Ivanov: First of all, we should differentiate between fiat-backed tokens on public blockchains and cryptocurrency-backed or algorithmic ones. The former became more widespread due to agreements with banks, although the latter emerged even earlier.
Classical, non-algorithmic, stable assets claim to have backing in US dollars, Euro, other fiat currencies or even commodities at the issuer’s bank account at a ratio of 1:1. However, in most cases, it’s impossible to verify their backing reserves, as many issuers are registered in offshore jurisdictions, and the only guarantee of the peg is users’ trust in the issuer. In fact, these are not cryptocurrencies, but tokenized fiat – digital money on the blockchain.
Neutrino USD belongs to another category of stablecoins, which is decentralized, or algorithmic stablecoins. Stable crypto assets of this kind are created without involvement of fiat currencies or traditional finance systems, and their rate is governed by algorithms. That’s why they are also called algorithmic stablecoins.
Tatiana Koffman: What about other popular decentralized stablecoins such as the DAI?
Sasha Ivanov: The DAI works on top of the Ethereum blockchain with the backing of its base cryptocurrency – ETH. Its pegging to the U.S. dollar is supported by market and technical mechanisms based on smart contracts that implement a price stabilization algorithm. A collateral in the form of ETH is blocked on a smart contract and a new crypto asset is launched on its basis. Price stability is achieved by the CDP (Collateral Debt Position) mechanism with a collateral surplus of up to 50% on average. When redeeming their tokens, users receive ETH back into their wallet.
But USDN has completely different mechanics under the hood. This is the first algorithmic stablecoin that’s not based on lending. USDN is issued when a user sends Waves to the Neutrino smart contract, receiving the number of USDN tokens equal to the number of Waves they sent. The sender no longer owns the Waves but the newly issued USDN. The contract becomes the new owner of the Waves tokens and automatically stakes them, generating block rewards corresponding to around 6% APY, paid in Waves daily. The Neutrino smart contract converts these payments into newly issued USDN and distributes them proportionally between all users who staked their USDN over the past 24 hours.
To establish an even broader user base, the USDN has been recently ported into the Ethereum ecosystem, bringing USDN’s stablecoin pools and yield farming functionality to users of Ethereum-based protocols. Another vital step was integration into Curve.fi. In less than 2 months, Curve.fi’s USDN pool grew to over $150 million and still remains one of the most profitable pools, partially due to its inherent yield. Subsequently, Ethereum USDN was ported into the Binance Smart Chain, which is the third biggest chain. And the number of chains for USDN implementation will only grow.
Tatiana Koffman: How do you see Neutrino compete with the DCEP and eventually the Digital Dollar?
Sasha Ivanov: DCEP is an example of where the boundaries between fiat money and blockchain blur. It’s not true fiat, yet it’s not blockchain as we know it, either. It’s an infrastructure intended to leverage specific aspects of both financial systems to accomplish goals for a payment system designed by the Chinese government. This refers to all “Central Bank Backed Currencies” (“CBDCs”) that are known and being discussed now. But Neutrino differs from CBDCs in most, if not all, core aspects. As for the digital dollar, it’s not absurd to assume it will have a similar, albeit slightly different outcome. Governmental requirements and its solutions are extensively diverse from innovation-driven blockchain protocols that are not tied by societal, legacy problems, being only limited by imagination and theoretical peak efficiency.
But DCEP’s advantages for users of traditional banking services, such as managed issuance, KYC or government control, turn out to be critical disadvantages for the crypto community. As the CBDC segment expands, the segment of decentralized, algorithmic stablecoins will also gain momentum. Independent of banks and regulators governed by a decentralized community, they ensure the stability of reserves through algorithms that don’t involve the human factor. They will become real stable cryptocurrencies, rather than just digital money.
Tatiana Koffman: What effect will Neutrino have on emerging markets such as Africa?
Sasha Ivanov: Many developing countries still have difficulties accessing traditional financial instruments. This is an issue that Neutrino can solve, as anyone can access crypto from anywhere (as long as there are no legal restrictions). That’s why NGNN, pegged to the Nigerian Naira, is one of the most popular assets on Waves.Exchange. We see a huge potential in developing regions and will keep building our presence there. Many African freelancers face restrictions today in getting paid for their services, a problem Neutrino assets are already solving, yet on a scale too small for our aspirations. NGNN also allows African citizens to leverage a high yield and hedge against inflation in general, while offering much needed protection against the national currency’s devaluations. There is also an option for diversifying into assets pegged to the US dollar and Euro, which are less volatile.
One specific aspect here is that cryptocurrencies help to overcome high remittances fees. This is of relevance to many other regions, not only African Citizens of many countries have jumped on the crypto wave to send remittances across borders and within their own countries more cheaply. For example, in Africa, bank transfer fees are exorbitant. That’s why crypto transactions are up by 55% in African countries over the past year. Similar growth of interest in stablecoins has been observed in Latin American countries and other developing economies.
Tatiana Koffman: What are some of the regulatory challenges you expect to face as you enter new markets?
Sasha Ivanov: It’s not uncommon for technological innovation to precede regulatory framework changes needed to allow for ground-breaking and often ‘quality of life improving’ or ‘global society enhancing’ techs. We don’t anticipate any big challenges, but we are aware that the grey area our industry is operating in is changing rapidly. Everyone is welcoming that change, but one just needs to apply common sense to regulations. We cannot, however, neglect the fact that countries whose citizens that have the most pressing need for solutions, could potentially have the most oppressive or generally status-quo-protective regimes. This should not stop us from doing what is within our capacity.
Tatiana Koffman: Where do you see Neutrino in 5-10 years?
Sasha Ivanov: Ten years is a too long period for forecasts in the crypto industry. Bitcoin has been around for only ten years, and, in another ten years, the entire crypto industry could probably be governed by AI and conquer the world!
But, speaking about a shorter-term perspective, we are setting high hopes on Neutrino as the cornerstone stablecoin protocol in the DeFi space. We expect stablecoins pegged to most fiat currencies to be issued on Neutrino, while coins pegged to stocks, indices, commodities and even other cryptocurrencies are likely to become the next step. We foresee Neutrino-based stablecoins as an integral part of people’s day-to-day payment routines, with Decentralized Forex, and a global Neutrino-based stablecoin exchange system, also playing a major role.
In general, Neutrino is the quintessence of one main idea – erasing barriers between crypto technologies and people.
Tatiana Koffman: Thank you Sasha!
At the time of writing the Waves market capitalization was over $900 million USD with a recent price rally of 107%, while USDN has a market capitalization of $100 million USD.