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What is the Havven cryptocurrency and how does it work?

Posted: 15 February 2018 5:53 pm

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Take a look at the inner workings of this new economic experiment and what it might mean.

Havven is all about economic engineering. It has two functions:

  • A payment network – A straightforward payment network. Simply a way to send money to other people around the world.
  • A stablecoin – A cryptocurrency whose price doesn't fluctuate and instead remains almost perfectly steady. In this case, it's stabilised at US$1.

What makes Havven different?

There are two main challenges involved in making a cryptocurrency stablecoin.

  • Making sure it remains stable: This has typically been solved with paired coin systems, involving two separate but related cryptocurrency tokens. In simple terms, one of the coins can absorb the price changes for both of them, so that one of them remains stable. Havven also uses this system. In this case, the "Havven" token is the fluctuating coin, while the "Nomin" token is the stablecoin that will remain stabilised at $1.
  • Making sure it has value: This is where Havven does things differently. With most stablecoins this has typically been done with outside collateral. This outside collateral serves as a pool of value to support the system and give the stablecoin value. For example, the MakerDAO stablecoin system uses Ethereum as collateral, the DigixDAO system and a few others use physical gold in a vault and Tether simply promises that they have US$1 for every $1 worth of Tether issued. But Havven will try to keep all the value within its own network, and not use any kind of outside collateral.

How does Havven work?

It's relatively simple in practice.

Nomins, the stablecoin valued at US$1, are used as the actual currency. They're used to make payments and buy things. But each transaction will incur a very small fee. This fee is distributed proportionally among Havven token holders.

As such all Havven owners earn Nomins, and the more Havvens someone has the more Nomins they will earn. Havvens and Nomins work together to give each other value. More people using Nomins means more transaction fees in the network, which means Havvens become more valuable, because they pay higher dividends to their holders.

What are the problems with the system?

One problem is that "Havven" and "Nomin" sound really goofy. This issue could be resolved by changing the names to something less goofy sounding.

Other than that, the main issue is ensuring that people are confident in the value of Nomins, and have solid proof that they can always redeem US$1 worth of value from each Nomin token.

This is mainly accomplished through a "distributed collateral pool". Before Nomins can be issued, people need to lock away enough Havvens into an escrow account. The system is designed to ensure that the total value of Havvens in the collateral pool is always worth more than the value of Nomins in circulation.

Havvens will still earn dividends from transaction fees for their owners while locked away in the collateral pool.

How are Nomins issued and destroyed?

A decentralised Nomin exchange brings it together.

Havven owners can choose to issue new Nomins by locking away an appropriate amount of Havven. These newly issued Nomins appear on a decentralised exchange with a price tag of US$1 (or the cryptocurrency equivalent) each.

Basically, any Havven owner becomes their own mint, able to issue new Nomins and sell them for $1 each. But if they want to remove their Havvens from the collateral pool, they will need to buy back the appropriate amount of Nomins for $1 each, on the same decentralised exchange. The bought-back Nomins are then destroyed and taken out of circulation.

By adjusting network fees, and thereby the returns earned from Havvens, the system incentivises participants to move the market towards a suitable balance, issuing and destroying Nomins appropriately in line with demand.

This system ensures that the amount of Nomins in circulation will always be backed up by enough Havven in the collateral pool. When the value of Havvens increases, more Nomins can be issued.

It's also designed to naturally incentivise its participants towards stability, by gently skewing the fee structure to encourage optimal collateralisation in the system. You don't want too much Havven locked away and more Nomins in circulation than people actually use. And you don't want a situation where everyone wants to use Nomins but can't because no one's locking away their Havvens.

The best value for money for Havven owners, and the point at which Havvens are at their most valuable, will be with a suitable balance between the amount in circulation and the amount locked away in escrow.

When the price of Havvens drops

By necessity, there will need to be a few different ways of valuing Havvens over time.

Firstly, you have the value of Havvens on the open market as an ERC20 (Ethereum standard) token. This is how much people are actually buying and selling Havven tokens for.

But by necessity, the Havven system won't be able to use this price for its internal calculations and for determining how many Nomins can be issued. Simply using this price would leave it vulnerable to economic attacks and risk yanking Nomins in and out of circulation as the price rises and falls.

So the system calculates its own "official" value for Havvens instead. It seems likely that the "real" prices will skew towards these calculated values anyway.

Initially – while the demand for Nomins is still low – this official value will be calculated based on a seven day rolling average of both Havvens and Nomins. This is intended to smooth out the prices, prevent economic attacks and avoid having the Nomin supply fluctuate unreasonably.

But once Nomins are being more widely used, the developers plan to calculate the value of Havvens based on the transaction fees they're likely to earn in the future. This will be based on the amount of transaction fees recently earned by Havvens, and if Nomins are getting more popular it will err on the low side. This will similarly prevent economic attacks, avoid too-wild speculation on the value of Havvens and should provide a more honest appraisal of a Havven's worth than most coins get.

As a whole the system is designed to incline towards over collateralisation, providing a relatively comfortable buffer for Nomin security. Furthermore, the amount of Havvens in existence is fixed (100 million), without any inflation. On paper, it should simply keep increasing as long as Nomins become more widely used. Speculation will likely be the main price lever, but the system has taken steps to insulate itself against this.

The system is designed to be self-sustaining and fairly resilient compared to most cryptocurrencies, but if the worst comes to the worst and the value of a Havven plummets, the Havven Foundation itself will maintain capital reserves to buy back and destroy Nomins as required.

And if those capital reserves aren't enough, then this particular economic system has collapsed, like so many others throughout human history.

How it begins

The goal, in the beginning, is to distribute Nomin tokens as widely as possible and start off with a sufficiently large and stable economic system, geared towards long term success rather than speculation. This is being done with:

  • An airdrop: People can register and sign up to receive free Havven. A total of $1 million worth of tokens are being distributed for free with an airdrop.
  • A pre-release token sale: A total of 60 million Havven tokens will be sold for 50c each, with discounts of up to 20% for buyers who choose to escrow their tokens in the collateral pool.

The implications of Havven

Havven is an economic experiment, presenting a feasible model for a stable, decentralised currency. It's worth noting that Nomins don't necessarily have to be pegged to the US dollar either. This is simply the most logical choice for this particular experiment. The developers note that different flavours of Nomin, pegged to other values, could also be run from the same distributed collateral pool.

Other assets could also adopt their own models based on this system, and issue tokens tied to those. The Havven model, if not Havven itself, may have potential applications elsewhere.

For example, it could serve as a model for decentralised financing and borrowing, or any other situation that involves the collective pooling of collateral, and the issue of tokens based on that pool's valuation, in a trustless environment. For example business partners seeking joint financing and putting up shared collateral, or decentralised lending/borrowing systems.

On a more grandiose scale, it might also serve as an early model of a national cryptocurrency scheme or a trustless multinational cryptocurrency where different member nations each hold their own "Havvens" in escrow, and issue currency as desired based on that.

And on an even more grandiose scale, your grandchildren might one day be paying for everything with Nomins, while the number of Havven-holders has inevitably consolidated into a small clique of oligarchs wealthier than anything the world has ever seen.

But for now, Havven will need to content itself with being an economic experiment with a goofy name.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, NANO, SALT

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