A lesser-known cryptocurrency has risen to prominence in a broader market marred by macro uncertainties, thanks to a cocktail of positive fundamental developments and the perception of flows stemming from the digital asset's Russia links.
WAVES is an inflationary token offered as a reward for mining blocks on the decentralized, open-source blockchain Waves. The token has rallied 240% to $30 in the past four weeks and is one of the best-performing coins, with a market capitalization of at least $1 billion, CoinDesk data shows.
The rally has helped the cryptocurrency make it to the list of top 50 cryptocurrencies by market value. At press time, WAVES was the 41st largest digital asset with a market capitalization of $3.35 billion.
"The main reason waves has climbed up is that Neutrino protocol's total value locked has increased by 338% in the past month," Rudy Chen, an analyst at crypto ratings firm TokenInsight, told CoinDesk in a Telegram chat.
Neutrino is an algorithmic price-stable multi-asset protocol based on Waves facilitating the creation of stablecoins with values pegged to real-world assets such as national currencies or commodities. Data tracked by DefiLlama shows Neutrino is the biggest protocol on Waves, accounting for 62% or $1.74 billion of the $2.8 billion locked in the Waves-based decentralized finance (DeFi) ecosystem. Total value locked is one of the most commonly used metrics to assess the DeFi sector's growth.
The supply of Neutrino's dollar-pegged decentralized stablecoin USDN has increased substantially in one month, perhaps putting upward pressure on WAVES. Per Messari data, generating USDN requires locking WAVES in Neutrino's smart contracts, while USDN redemptions have the opposite effect of destroying the stablecoin to unlock WAVES supply.
"The outstanding supply of USDN has increased by approximately 66% since mid-February (around +350 million USDN) which means that an equivalent dollar amount of WAVES was locked up in Neutrino to mint that new amount of USDN," Gabriel Tan, investment analyst at The Spartan Group, told CoinDesk in a Telegram chat. "This could have been a substantial demand driver for WAVES if a large chunk of the locked-up WAVES was bought off secondary markets."
CoinGecko data shows the market capitalization of USDN has increased by more than 60% to $736 million in one month, perhaps powering the waves token higher.
According to observers, there have been two sources of demand for USDN and, therefore, bullish pressures for WAVES. First, increased investor interest in staking USDN on Neutrino and other avenues. Second, the broader market lull.
"Why the increase in the outstanding supply of USDN? It could be because of the relatively high USDN staking annual percentage yield or APR of 9.5% on Neutrino or 19.84% APR for supplying USDN on Vires.finance," Spartan's Tan said.
Users can use USDN as collateral to trade or mint synthetic assets or stake the stablecoin to earn an extra yield. Staking refers to holding coins in a cryptocurrency wallet to support network operations in return for newly minted coins. The process is analogous to passive investing. Vires.finance is is a decentralized non-custodial liquidity protocol based on Waves Blockchain, enabling users to participate as depositors or borrowers.
Investors typically park their money into stablecoins, which offer price stability and protection from broader market volatility during times of stress. And they may have done so over the past several weeks, as Russia's invasion of Ukraine on Feb. 24 and the-then lack of clarity about the U.S. Federal Reserve's monetary tightening plans weighed over both crypto and traditional markets.
"When the market fell, people tended to sell their crypto assets and turned into stablecoins. That's why Terra's LUNA token and WAVES outperformed the market, because they both have strong community consensus on their algorithm stablecoin, UST and USDN," respectively, Token Insight's Chen noted.
Some have associated the WAVES rally with the recently implemented Waves 2.0 upgrade announced last month. The upgrade is expected to make the network faster, more secure and Ethereum Virtual Machine (EVM) compatible.
However, Spartan's Tan disagrees. "One could argue that the Waves 2.0 announcement on Feb. 11 triggered the rally, but I think this is unlikely. The rally only started happening in the last week of Feb (unless the markets are so inefficient and slow to price in the announcement)," Tan quipped, drawing attention to the dour market response to the similar announcements made by other blockchains in the past.
"If you look at past [Ethereum Virtual Machine] compatibility announcements for other chains like Kava, Cronos and Near, none of those token prices rallied three times in the one to two months post-announcement like what WAVES cryptocurrency has done," Tan added.
While developers announced the Waves 2.0 upgrade on Feb. 11, the token began rallying later that month around the time Russia invaded Ukraine. That has some observers wondering whether the early move higher resulted from speculations jumping the gun on Waves blockchain's association with Russia.
"Waves was misperceived by markets as a Russian/Ukraine-associated project and may have attracted speculative demand from traders who want to ride the Russian/Ukraine narrative," Spartan's Tan said.
Waves blockchain is sometimes referred to as Russia's Ethereum owing to its association with Rostec, a Russian manufacturing giant and misconceptions about Waves founder Alexandr "Sasha" Ivanov hailing from Russia.
However, Ivanov told Bloomberg early this month that he is a Ukrainian citizen and the rally in WAVES tokens has got nothing to do with the situation in Russia.
UPDATE (March 24, 11:12 UTC): Amends headline.