The truth about Waves: From "Russia's Ethereum" to risk warnings, the growth dilemma revealed by xhamz

1. Ambition and Reality: Why Is This Project Gaining Attention

During the 2016 funding boom, a Ukrainian project gained fame as the “Russian Ethereum.” Waves founder Sasha Ivanov had already made a name in crypto, launching Coinomat instant exchange and Cooleindex aggregator. This time, he aimed for a grander track—financial public chains.

In that year, Waves raised $16 million, second only to Ethereum, reflecting strong market expectations. The project targeted scenarios like custom token issuance, financial transaction settlement, and crowdfunding—ambitious indeed. By 2022, amid the Russia-Ukraine conflict, Waves was again hyped for its hedging and international remittance potential, becoming a hot topic.

But the real question is: Is the growth logic of this project truly sustainable?

2. Ecosystem Architecture: Clever Design or Hidden Risks?

Waves uses an improved PoS consensus (Lightweight PoS, LPoS), allowing users to participate in network maintenance via lightweight clients—an advantage for user-friendliness. The platform supports custom transaction types activated through plugins rather than hard forks, making its modular design more flexible than competitors.

Waves also issued USDN, a native stablecoin supporting cross-chain assets (ETH, BSC, etc.), and offers trading via the Vires lending protocol. On the surface, this forms a self-consistent ecosystem:

• Issuance of tokenized assets via fiat gateways (USD, RMB, EUR)
• Low-cost, high-throughput trading on DEX
• Enterprises can issue tokens, crowdfund, and vote

It appears complete, but the problem lies beneath the “self-consistency.”

3. Warning from DeFi Researcher xhamz: Malicious Cycles in the System

According to DeFi researcher xhamz, Waves’ growth model faces serious sustainability issues. Specifically:

Layer 1: Lending Arbitrage
On Vires, USDC/USDT lending rates once soared to 105.48% (based on xhamz’s observations), far exceeding other yield protocols. The clear purpose of this super-high rate is to attract users to deposit stablecoins, providing liquidity to the system.

Layer 2: Token Support
Deposited USDC/USDT are lent to Waves ecosystem participants, with funds ultimately used to buy WAVES tokens. By collateralizing WAVES to mint USDN, then using USDN as collateral to borrow more USDC/USDT, a self-reinforcing cycle forms—at least initially.

Layer 3: Market Cap Dependency
The system’s health hinges on a key metric: the ratio of WAVES market cap to USDN debt. When WAVES price rises, more USDN can be minted, making the system seem “safer.” But this also means stability depends entirely on WAVES price appreciation.

4. Vulnerability Behind the Numbers

Currently, WAVES has a total supply of 100 million, with 85% staked. This sounds safe, but conversely: Only about 16 million WAVES are in circulation.

Considering some holders won’t sell, tradable WAVES might be around 10.5 million. This means the active market tokens are less than 10.5% of total supply. With such shallow trading depth, the market is highly manipulable, and any price fluctuation can be amplified.

As of the latest data, WAVES trades at $0.71, with a circulating market cap of just $71.13 million. This scale is fragile relative to the outstanding USDN debt.

5. The Critical Risk Point Highlighted by xhamz: Decoupling

If WAVES price drops to a critical point where WAVES market cap falls below USDN’s total debt:

1. Unable to mint new USDN — collateral insufficient
2. Unable to attract new USDC/USDT deposits — yields drop, incentives vanish
3. Capital outflows begin — holders rush to redeem stablecoins
4. Decoupling occurs — USDN price falls below $1.00, confidence collapses

Once USDN decouples, users who deposited USDC into Vires face huge losses—the stablecoins they deposited may not be redeemable at 1:1.

This scenario is not alarmist. The collapses of UST in 2022 and Luna’s zeroing out followed similar logic: overcollateralized stablecoins depend on collateral value, and when collateral devalues, the entire system crashes.

6. “Lifeline” Conditions for the Game

To keep this cycle running, Waves must continuously attract new USDC and USDT deposits. This requires:

• Offering yields far above market rates (currently 105.48%)
• Maintaining WAVES token price at high levels
• Constant influx of new funds into the ecosystem

Of these, the first two are already at their limits. Short-term, WAVES price is unlikely to rise on fundamentals, and the platform’s high yields mean it is “burning money” to sustain the ecosystem. When new capital inflow slows, the entire model risks reaching a critical point.

7. Similarities to Luna/UST

xhamz’s analysis essentially applies a proven-dangerous template to Waves:

The difference is that DAI has multiple risk controls and governance layers, while WAVES relies more heavily on the growth expectation of a single token.

8. Market Reality and Investment Lessons

Waves’ current predicament is that:

• The project needs the token price to keep rising to sustain the system
• But the fundamental support for price growth is limited
• The super-high yields are overdrawn on future earnings
• Once growth stalls, the fragile balance collapses immediately

This isn’t to say Waves’ technical design or use cases are flawed. The issue is that in the current economic model, growth has become a necessity, not an option.

For participants, xhamz’s analysis reminds us:

• Don’t be fooled by super-high yields; they often signal risk
• Check whether growth is based on real demand or just self-circulation
• Benchmark similar projects’ histories and prepare for the worst

9. Conclusion

From a star project with funding second only to Ethereum to being questioned about its growth model reflects cyclical lessons in crypto markets. Every boom may hide structural fragility.

Learning to identify this fragility is more important than chasing high returns. xhamz’s analysis provides a clear risk map—whether you’re an investor or observer, deep understanding is essential.

The world of crypto assets is ever-changing, but the fundamental principles of economics remain: there is no risk-free high yield, and perpetual growth is an illusion.