Saturday , October 31 2020

As DeFi Eyes Profits, One Stablecoin Won’t Sacrifice Privacy

For years, the rich have stored gold and euros in offshore bank accounts. Haven thinks everyone should have that level of privacy, minus the bank accounts.

When the Panama Papers were leaked in 2016, detailing how the rich used offshore bank accounts to shield their funds from taxation, many were appalled. But it might have given the creators of the Haven blockchain protocol an idea: Let’s just give everyone private offshore accounts (minus the money laundering, of course).

This week, Haven, which calls itself “an offshore bank, without banks,” introduced four new assets to put in those private accounts: xGOLD, xSILVER, xEUR, and xCNY. And, according to Haven, they’re untraceable.

Haven has been in the works since 2018, but the protocol only came into being in July 2020. The basic premise was that people could use the Haven blockchain to mine XHV, a fork of privacy coin Monero. At launch, users could burn their XHV and replace it with xUSD, a stablecoin token designed to keep its value relative to the actual US dollar. 

Haven project lead Pierre Lafitte told Decrypt the protocol combines the privacy of Monero with the usability of stablecoins: “Monero is fantastic at privacy, but offers a relatively poor user experience and still suffers from the same volatility issues as Bitcoin and  Ethereum. That volatility makes it a great speculative investment for experienced traders but inappropriate for everyday use in commerce.”

And Lafitte et al definitely see XHV as a general-use cryptocurrency. Users store it as xUSD, then, when they’re ready to use it, convert it to an equivalent amount of XHV. Crucially, this all occurs without price slippage (i.e., you don’t lose money by exchanging it) because it occurs internally on the Haven blockchain without third-party exchanges.

Keeping it on the Haven blockchain also maintains privacy, an important feature for Lafitte and the Haven team. “If I buy you a coffee, I should have no right or access to your entire transaction history and I deserve no right to peer into your investments, assets or passive income earnings,” he said.

“That is the state of all blockchains, aside from Monero and Haven.”

The introduction of xCNY and xEUR is an international play to reach Chinese and European users accustomed to working with yuan and euros. The additions of xGOLD and xSILVER, tied to precious metal prices, are for users looking to hedge against inflation in fiat currencies.  

So, essentially, people can use Haven to store gold or, more precisely, the equivalent of gold. Then, without fees, they can turn it back into XHV so they can spend it privately. (At the moment, people looking to store xGOLD have to first exchange XHV for xUSD, but Lafitte says they hope to cut out the extra step.) It’s an extremely liquid version of an offshore bank account. 

Right now, however, it all feels a bit theoretical. XHV has a market cap of under $30 million, which ranks 193rd among all coins on CoinMarketCap.

If Haven is a desert island, it’s a sparsely populated one. The project is almost totally bootstrapped, without an ICO or venture capital, and with just four core developers and four contributing team members. An anonymous donation of $1 million this week “marks the first time Haven has received any development resources outside of our small governance fee that has funded Haven’s four core developers since January 2019,” a September 17 blog announcement read.

And while Lafitte recognizes there’s money to be had in yield farming and Ethereum-based DeFi, he said, “We’re not trying to get involved in it.”

For starters, there’s the regulatory risk that some DeFi tokens could be classified as securities. Moreover, it would involve creating a wrapped XHV token to get it onto the Ethereum network. “It’d just be another ERC20 with no actual privacy,” he said.

That’s something Lafitte et al won’t compromise on: “Privacy has to be by default, at a base level, not optional or at a Layer 2 protocol. The reason is simple, no one uses optional privacy.”

Then again, there have been plenty of passion projects in cryptocurrency that did modest numbers…until, all of a sudden, they didn’t. Take Uniswap. After going live in November 2018, the decentralized exchange never held more than $50 million worth of Ethereum and ERC20 tokens in its smart contracts until June of this year. Today, it holds over $1.7 billion

Haven is driven by ideology, not quick cash. Nonetheless, Lafitte thinks it’s actually in the vanguard of what’s to come:

“We’re of the belief that all cryptocurrency will move towards some level of privacy, as public transactions are incompatible with everyday commerce, business and financial use cases at both the individual and commercial level.”

The four new assets will be added after Haven’s upcoming v0.16 upgrade.

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