"You have prohibited collateral" (USDN)

Currently if you try to use USDN as collateral to borrow any asset, the app will block you because you have “prohibited collateral”. There is no explanation anywhere as to why this is the case.

It’s not explained but it’s easy. As the USDN is depegged, there is possibility to create a loop: buying cheap USDN on the market, placing it as a collateral (USDN still costs $1 on vires), borrowing another asset, selling it on the market, buying cheap usdn… And so on.
But it should be clearly explained of course.

Why is that a problem? Doing that helps USDN regain its peg because it creates buy pressure. It only becomes a problem if USDN never actually regains its peg, as lenders of borrowable assets would be left with worthless USDN upon liquidation. Surely the waves/vires team believes USDN will repeg, right? If it didn’t then their current process of paying back USDC/T lenders with USDN would be meaningless, and USDN would be outed as a Ponzi scheme just like UST.

What ‘buy pressure’? If you buy USDN in 0.67 and changes here by USDT/C 1:1. You can leave the account and run away with the profits.The borrow will go on accumulating debt, but you won’t care. This was the big problem here.

I didn’t know that they added this action. We have always asked for an oracle for USDN, but this is already something.

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In order to deposit USDN you have to get it from somewhere. If USDN is < $0.90 somewhere then you can buy it and deposit it into Vires to make a risk-free profit when borrowing. This is called arbitrage, and such an opportunity creates buy pressure on USDN (everyone wants to get in on this opportunity). That is a good thing, and is a basic mechanic algo stablecoins use to maintain their peg. Additionally, once USDN does regain its peg all of the people who borrowed while using USDN as collateral are incentivized to repay their debts because they made more off of the USDN price increase and can only realize those gains by repaying.

The only reason borrowing using USDN on Vires is paused is because they don’t have confidence USDN will keep its peg. This isn’t exactly surprising considering the Waves team pretty much removed the peg mechanism when they made the daily USDN burn limit proportional to the backing ratio.

I agree with you but, in my opinion, the more important problem is a constant value of USDN on Vires platform. It should be created (value) by oracle and there wouldn’t be any problem with a crazy loops that you described. The oracle pricing has been discussed since ages here… but the Team didnt want to implement it (btw, it’s too late now) cause if USDN on Vires drops below ex. $0.8 (using oracle) many positions collaterated with USDN will be liquidated. Especially - we all know whose position. That’s why the USDN on Vires is still worth $1 even if the platform is totally unusable.

But… if one can mint as many USDN as he wants maybe even oracle will not solve any problem :slight_smile:


It is called ‘arbitrage’ only when you are going to repay the loan. If not, and you are going to run away with someone’ money cause you were able to take a risk-free loan it’s called ‘theft’ then.


We saw the example here of the problem, day by day. I don’t know if from the beginning they didn’t even plan to return, perhaps the time that the USDN spent depeg made them abandon the debt with the profits (because it was not worth paying for it).

The question is that it happened, we are still suffering from it here. That is why the oracle for USDN has been asked for a long time, as japu said.

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Seems I said it too many times cause my account on Vires.Finance telegram group was yesterday banned for 5 days :slight_smile: Or maybe because I said what everyone knows about bad debts and which accounts should be liquidated instead of decreasing APR :slight_smile:


Looks like the waves team is having trouble propping up the price of USDN this time.