USDN depeg: YLA on fire. Let's discuss the DAO actions

Hello everybody. Due to the latest incident with USDN depeg and consequences of it for YLA we need to discuss what to do further.

Some background info:

  1. Team is aware of the incident and wants to discuss together with the DAO members what to do

  2. PowerPool products are built on top of third-party protocols and assets, and all of them carry risks:

YLA composition was initially designed to follow the choice of the market from pre-selected list of vaults. The algorithm of weighting Vaults in the basket was based on TVL allocated to each particular Vault.

In simple words - the more $$$ TVL is in Vault, the bigger share of the YLA basket it has.

TVL for products containing USDN, other Defi protocols:

—> Yearn Finance USDN Vault had around $65m TVL, Convex - around $180m TVL before depeg.

  1. Nobody knows if USDN will peg back or not but emotion-based decisions frequently lead to losses.

Let’s discuss what to do together, including possible compensation plans.


Suggestion: Blow up the discord with a bunch of interim information. People naturally go there for some sort of word, and if you have the time to just put something on the announcements channel, you’ll put a lot of people at ease.

We’ve seen USDN recover before, from about $0.93, and already it seems to be tracking back up through $0.80. However, there ought to be a plan to allow people to withdraw their YLA for USDC as normal, at the price that existed before depeg, if that’s possible. Those that want to ride it out and hope for re-peg can do that, but other people could get close to what they had and get out.

What about letting people liquidate their YLA at a loss but drop them CVP that’s locked away in order to make them whole?

I’m not seeing anything that suggests that USDN can’t return to peg. They just take longer to do it because their buy-back/peg mechanism is centralized and manual, not algorithmic. Perhaps this will all be better tomorrow. Does anyone else have any news on that?

Update: Word from Waves founder and team is that there are ongoing discussions about bolstering USDN to return it to peg. I’m hoping that will happen, and not panic-withdrawing my YLA.

WAVES team is working on restoring the peg back:


Emphatic disagree

People must always enter at market price and exit at market price. People who stay should not bail out those who are leaving. If you are confident usdn will restore peg, buy more and take all the risk and all the profit for yourself.

Your proposal will mean the exiting take no more usdn risk and get $1 while the stayers get all the usdn downside and no upside. That’s fundamentally unfair.

CVP should not be used to bail out either as this will potentially lead to selling pressure, even more so if the peg restores.

I propose the following solutions to the issue of USDN de-peg:

  1. Let’s agree on a USDN price and/or date at which the pool will collectively take a loss. This way we have a means of protecting users funds. This could be as simple as saying if USDN hits 70 cents again in the next X days it will trigger a liquidation event. We cannot wait on a proposal for when to sell. We have to set conditions for the team to act upon swiftly in case of a dramatic turn of events.

  2. Those affected could be given locked CVP compensation. I would be strongly in favour of doing this in a way that makes people whole without adversely affecting CVP.

  3. Immediately begin the process of obtaining coveragae for YLA. Both depeg and smart contract coverage. I think creating the option to automatically cover the pool would be very powerful, even if there end up being a covered and uncovered YLA option for people to choose from.

  4. Introduce greater diversity. It has been mentioned on several occassions that we are too exposed to USDN, so this outcome isn’t very surprising. There have even been times where USDN was under-collateralized by 25%. Let’s add UST and other farms with a goal of providing healthy yields without too much exposure to a single point of failure.

  5. With respect to USDN itself, from tomorrow there will be the ability to arbitrage USDN at a reduced rate. Can someone see if there is a way for us to borrow funds, or have everyone contribute to a fund to buy up the necessary NSBT tokens to begin arbing the YLA pool back to making everyone whole?

The USDN issue is simply a risk management failure.

Depositors had ample opportunity to avoid YLA or to size their deposits appropriately.

I don’t understand why there is any discussion of compensation or risk transfer.

Depositors accepted the risk and it has now gone against them. They can wait and see or cut their losses.

Proposals to reward their poor decision making or to reward their unwillingness to accept the consequences of their choices only disadvantages those who accept that they invested and lost money.

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I personally think as USDN is the key stablecoin of waves ecosystem, they have to use all their resources to restore the peg, hence I think exiting or doing rebalancing now is premature and will result in loses.

At the same time, we need to put some protective measures in place, and quickly sell USDN position if waves team fails to restore the peg.

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There is now discussion to remove the NSBT requirement when USDN is significantly off peg. If passed or even formally proposed this would likely lead to a lot of opportunistic buying from people who anticipate the peg will be restored.

The other proposal that increases the arb potential for NSBT stakers will pass tomorrow which should help.

There are still issues related to the lending situation on Vires, which may make us want to get out of USDN temporarily, but right now things are looking up. I suggest YLA holders to spend some time defudding on Twitter and supporting proposals and discussion on the Neutrino forum here: Open Swap Proposal - #4 by hawky - Proposals - Neutrino Protocol Forum

Do you have a day range or price point that you feel should trigger a liquidation of YLA funds?

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I like the direction you thinking about this issue.

the peg wlll likely come back post the neutrino proposal easing hte conditons to arb it. Most likely will be arbed by the team or big $NSBT holders and not the avergage Joe but at least they will be in a financial situation where they’ll be able to backstop Vires as well.