What is Havven? | A Beginner’s Guide
A stablecoin is a cryptocurrency that somehow maintains its value against fiat money (e.g. USD), usually through collateralizing (backing) it with fiat money or other cryptocurrencies, or through other approaches such as “minting” (creating) and “burning” (destroying) tokens to manipulate inflation. Havven’s approach is collateralization by reserves of cryptocurrency—first with reserves of Ethereum, and later, using the Havven (HAV) token to back the value of a secondary stablecoin token called nomins.
By the way, the Havven project should not be confused with the Haven project (with one v), another stablecoin project.
We’ll take a look at Havven’s approach to price volatility dampening, among other things, through exploring these topics:
- What is Havven?
- The Technology Behind Havven
- How to Buy and Store Havven (HAV) and eUSD
Based in Australia, Havven launched a seed funding round in September, 2017 to develop the concept of a self-contained stablecoin payment network. They then kicked off their public ICO on February 28, 2018 and by the end of the ICO on March 7, 2018, they had met their goal of $30,000,000 USD.
Havven is led by a multidisciplinary team of 13 individuals. The project was founded by Kain Warwick, who previously co-founded blueshyft, one of the largest digital payment networks in Australia. The CTO is Justin Moses, who also serves as the Director of Engineering at MongoDB.
The concept is fairly simple: a distributed payment network that allows users to transfer value without relying on fiat money.
Havven aims to address the problem that companies running centralized payment networks such as PayPal, credit card networks, or the SWIFT banking network have “absolute control over the value within the network, so any transaction conducted within them may be blocked or reversed at any time.” According to the Havven white paper, “Although this is ostensibly designed to protect users, it introduces systemic risk for all participants. If the network is compromised or its owners cease to behave benevolently, no party can trust that the value in their account is secure or accessible.”
Another important point is that, in such payment networks, the fees do not typically align with the costs of maintaining the network—with profits being the main motivator rather than affordable, quality service. This is particularly true for large payment networks that prioritize scaling rather than improving their products.
Although Bitcoin solved the problem of having to trust a central entity to transfer value, it suffers from having an extremely volatile price. Sure, Bitcoin’s value has tended to go up over the long run. But the price often has huge swings downward on a day-to-day basis. This is a serious drawback for Bitcoin and other cryptocurrencies, making them poor stores of value, and thus, not of much use as actual currencies.
This is where stablecoins come in.
It’s not as complex as it might at first seem in Havven’s technical white paper. Ultimately, the goal is to have two tokens in the Havven ecosystem: nomins (nUSD and other fiat based nomins) and havven (HAV). The nomin has a floating supply to help stabilize its price, while havvens have a stable supply and are designed to provide collateral for the system.
Havven’s value is derived from projected fees generated in the network, since HAV holders can be paid dividends from network fees by locking their HAV in an escrow smart contract. The havven token’s value is therefore not entirely speculative.
The stability of nomins will rely on this value and will be based on overcollateralization by havvens, with the mechanisms of the system ensuring that the value of escrowed havvens is always greater than the value of nomins in circulation.
This is theorized to work because anyone who holds HAV tokens in escrow will be incentivized by Havven rewards derived from network transaction fees that will be distributed “in proportion with how well each issuer maintains the correct nomin supply.”
When a Havven escrow user puts their HAV in escrow, USD-stabilized nomin will be automatically put up for sale on a decentralized exchange at a price of $1 USD. To release escrowed HAV, the user must buy back the nomin issued (also at a price of $1 USD) at which point the nomin will be burned (it ceases to exist).
The Havven system uses an algorithm to adjust network fees, and therefore dividends, to HAV holders to incentivize (or disincentivize) the holding of HAV in escrow smart contracts, and thus, the creation of nomins. The theory is that this will cause users to mint and burn nomins in the appropriate amount based solely on supply and demand.
Additionally, as more people use nomins, there will be more transaction fees in the network, which in turn will make havvens more valuable, theoretically creating a feedback loop of network growth. In Havven terminology, this escrow-based collateralization system is called a “distributed collateral pool”.
The Havven white paper explains the necessity for such a distributed collateral pool:
“A decentralised system cannot use collateral assets that exist outside the blockchain, as interfacing with these assets necessitates centralisation with the aforementioned failure modes. Meanwhile, cryptoasset prices have been dominated by speculative volatility. So, whether a system uses real-world assets or cryptoassets to back a stable token, if the value of the collateral is uncorrelated with the demand for the token, then the system is vulnerable to external price shocks. Large corrections can destroy the value of collateral without any change in the demand for the token issued against it.”
Currently, Havven has launched a temporary stablecoin backed by Ether, the eUSD. The eUSD is a sort of prototype test coin to collect data for the eventual launch of nomins, and is pegged to the US dollar.
The plan is for Ether backed eUSD to be replaced by nomin backed nUSD (currently slated for June 11, 2018).
There are three other ways that cryptocurrency stablecoins have sought to maintain their value against fiat, each with its advantages and disadvantages.
This method uses fiat money stores to maintain the value of the cryptocurrency by simply holding the same number or more of fiat monetary units as there are circulating units of the stablecoin. The advantage is that theoretically, there is actual fiat money backing the currency. The flaws with this method are that it requires the trust of the entity in question that is holding the fiat money, it’s expensive and potentially inconvenient to hold so much money, and it requires regular auditing by trusted third parties (which could be bribed, or have a conflict of interest, for example).
Cryptocurrency Collateralised Coins
Although collateralization with cryptocurrency solves the problem of having to trust a centralized entity, it creates a new problem by still relying on the value of cryptocurrencies to back the value of a stablecoin. Simply adding more collateral in cryptocurrency to account for market fluctuations makes it a potentially expensive proposition, and since the cryptocurrency market often sees massive price crashes, there is no guarantee even then that the value of stored cryptocurrencies that are backing the stablecoin will maintain enough value.
A non-collateralized coin refers to a cryptocurrency that controls its publicly known money supply in an attempt to affect the price on the market. There are a couple of ways of doing this.
If the value of the coin falls, for example, the entity controlling the minting and burning process can buy up coins with reserve capital, potentially burning them (or not). If the value rises, the central entity can then mint new coins and put them on the market. The problem here is that reserve capitals are not unlimited, and again, with such a volatile market, it would not be out of the question for a large price drop to deplete the central entity’s purchasing reserves, leading to a drop in price of the “stablecoin” in question.
Collateralized Coin with Non-Collateralized Spin: Havven’s Method
Havven does have the goal of maintaining at least 80% overcollateralization, which is significant, but the value of cryptocurrencies have been known to quickly fall by over 80% or more. Their method of being able to combine this with controlling the minting and burning of the nomin stablecoins based on demand may help to offset this potential downfall. This method too, is of course still speculative as to whether it will work, so it will be interesting to see how Havven performs when it launches its full system backed by Havven instead of Ether.
You can purchase Havven (HAV) on the following exchanges, which includes Kucoin, Qryptos and IDEX, among others.
Instead of storing your HAV on one of the exchanges, due to security concerns with potential exchange hacking we recommend using an ERC-20 compatible wallet that allows you to add custom tokens, such as MyEtherWallet, MetaMask, MyCrypto, or Coinfy. There is currently no specified date for an official HAV wallet.
Details for adding HAV:
Smart Contract: 0xf244176246168f24e3187f7288edbca29267739b
Token Decimals: 18
eUSD can be bought with Ether using Havven’s eUSD conversion tool until the eUSD liquidation period is announced, after which eUSD holders will have 90 days to trade their eUSD in for Ether. eUSD will continue to be backed by at least 50% more Ether than is needed compared to Ether’s USD value.
There is no doubt that cryptocurrencies have created an explosion in innovation in monetary policy, including how money is created and destroyed, inflation and deflation, and with the speed and cost of value transfer in general. However, perhaps one of the greatest weaknesses of using cryptocurrencies as an actual currency is the extreme volatility in price that the market has displayed from day 1.
If Havven or other stablecoin cryptocurrency projects can demonstrate a way to maintain price stability without relying on external fiat systems, this could provide a real challenge to centrally issued fiat money as a way of transferring value between parties. The more experimentation that can happen in this vein, then, the better.
As more and more stablecoin projects come online, it will only be a matter of time before one of them succeeds in creating a stable, yet truly decentralized payment network, and Havven looks to be a promising contender in being one of the first to achieve this goal.
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