Wintermute vs. NEAR Foundation: A feud is brewing around the failed USN stablecoin

A substantial amount of USN, a stablecoin on the NEAR -2.66% blockchain that was sunsetted after it depegged last year, has triggered a very public spat between maker Wintermute and the Near Foundation. 

"Keeping things quiet is often a sensible approach to adversarial situations ... However, doing things this way just doesn't feel right to me in the post 3AC/Terra/FTX/Alameda world," Wintermute CEO Evgeny Gaevoy wrote on X on Tuesday evening, in a thread he titled "How we are not really friends with Near @NEARFoundation and Aurora Labs @auroraisnear going forward."

Gaevoy accused the Near Foundation of backtracking on a redemption deal after Wintermute helped the FTX bankruptcy estate liquidate 11.2 million USN.  

"We executed the transaction providing over $11M to FTX creditors," Gaevoy wrote. "While we acted on a proprietary basis (not as agent), we of course entered into the transaction based on the confidence that we could redeem USN to USDT on a 1-to-1 basis. This confidence was based on public statements by NF, Near introducing us to Aurora and Aurora confirming in private chats that they can facilitate the redemption."

Gaevoy said that Near Foundation has refused to honor the redemption, offering at one point to transfer just 20% of the total amount. He said Wintermute is considering legal action after suffering "direct harm."

"I can only speculate as to the genuine reasons behind backtracking the redemption," he wrote. "The best explanation for this would be incompetence. I’d leave the reader to come up with the worst."

NEAR responds

NEAR Foundation disputed Gaevoy’s account in a written statement to The Block, arguing that Wintermute was interested in arbitraging a system designed to compensate ordinary users for profit. 

In a statement sent by email, the Near Foundation said that Aurora did not have full information about the USN tokens Wintermute wanted to redeem and only confirmed "that a large redemption could be facilitated in theory."

When Aurora learned that the tokens being redeemed were connected to Alameda Research, it "had concerns about potential AML/KYC issues arising from the history of those funds and the ongoing Alameda estate liquidation process," Near Foundation said. 

Wintermute's redemption request also "was inconsistent with the original spirit and intent of the program (i.e. to make USN users whole and not to support profit through arbitrage.)," NEAR Foundation added. "In terms of the funds, Aurora has emailed WM with a request for details surrounding the processing of return of funds, but they have not responded."

Gaevoy did not immediately respond to a request for additional comment from The Block.

USN depegged last year

Last October, USN lost its peg due to the "extreme market conditions" and a code deficiency that led to "some double-minting” of USN. To make users whole and avoid a Terra/Luna-like collapse, the foundation pledged to fill a $40 million gap in reserves by providing the money to Aurora, a smart contract project on NEAR, which was made responsible for compensating users. 

According to Igor Stadnyk, founder and CEO of a blockchain startup INC4, USN's design initially had been very similar to UST (Terra), as it was an algorithmic stablecoin pegged to the price of its sister coin, NEAR. Later, after the Terra/Luna crash, that was changed, and USN became backed by USDT.

As with Terra, USN's single most attractive use case was yield farming. 

"Millions could have been earned each month on Ref.Finance via the USN/USDT trading pair," Stadnyk told The Block. Alameda was one of the top liquidity providers on the platform, he added. 

Wintermute famously made tens of millions in profit on arbitrage between Terra and Luna as the failed cryptocurrencies were crashing last spring, with the firm trading "more than $250 million of it all the way down to about $0.10 a token," Forbes reported in December, citing an interview with Gaevoy.

Disclaimer: Evgeny Gaevoy, the founder and CEO of Wintermute, sits on The Block's board of directors and is a shareholder.