Why Haven Protocol’s [XHV] Offshore Storage is the best crypto stable coin storage solution.
Offshore Storage allows users to preserve the value of their coins, without compromising on security, privacy, and decentralization unlike other stable coins. Offshore Storage allows for anyone to be able to effectively open a USD based bank account without a central bank and transact funds away from the prying eyes of government.
Offshore Storage: (Mint and Burn)
The underlying coin is decentralized and the collateral efficiency is at a maximum (burning $100 worth gives you $100 worth). It’s also secure in a crash as no matter the price, the method of minting and burning works without discrimination. Any issues with liquidity can be circumvented with a USD base trading pair too.
Offshore Storage functions exclusively with a Privacy coin. The ’mint and burn’ lets the money supply fluctuate freely. The velocity of money is cryptographically unfeasible to determine as the blockchain does not reveal the amount transferred nor the wallet addresses they are transferred to. This means the currency is unable to be valued based on total supply.
Other Stablecoin types:
The problem with existing solutions is that they tend to fall into a few main problematic categories:
Fiat-collateralized — e.g. Tether.
The fundamental issue with this method is that it is centralized and requires a large amount of trust in the company that is holding the fiat. It is not a long term solution and is counter-intuitive to exactly what crypto is trying to solve.
Crypto-collateralized — Backing a stablecoin with Ethereum/another Crypto. It’s Decentralized but as the backing isn’t stable either, a big enough price drop could exceed the amount of collateral and force you to liquidate. Not immune to crashes
Non-collateralized — Functions like a central bank by controlling the money supply of coins in order to move the price towards $1. This is a step in the right direction but still falls short. If the current price is $1.50, more coins are created and sold into the market to lower the price. If the current price drops to $0.50, coins can’t simply be burned so the central entity has to buy up coins in the market until the price hits $1.
Attempts to circumvent this by selling contracts to users to temporarily fund shortfalls and pay them back once the price goes up… Overall not very decentralized and not immune to a major crash.
Haven Protocol uses Offshore Storage to produce the best Stablecoin from a security of value and decentralized perspective in addition to being completely private.
Common Questions regarding Offshore Storage:
What if XHV’s price drops; resulting in minting more XHV thus causing inflation and further lowing the price. Couldn’t this turn into a massive inflation spiral?
This is a common question, which is understandable. Specifically with this example — there are a few assumptions you’d have to make to infer an inflation spiral. In order to get XHVD in the first place, you’d have to burn XHV, thus lowering supply (deflation).
To a certain point this is balanced out by reminting XHV (inflation). Although, because of offshore storage, the value of the coin isn’t directly derived by the supply, as its unknowable. Also, if you consider the users utilizing Offshore Storage, for the purpose of safe storage, are they going to mint back coins when the price lowers? What would be their reasoning for doing so? Minting and burning will be happening all the time no matter the price and doesn’t have to have any interaction with XHV trading on Exchanges.
What if there isn’t enough liquidity to cover selling your minted coins at the determined valuation price — as selling would lower the price?
A XHVD/USD Base pair would totally solve this. Haven’s long term plan is to have XHVD/USD pairs on exchanges.
Even without, the solution is simple — Smart users wont mint and sell their XHV in a downward trend, users have a large disincentive to do so as they could get more in an upward trend. Users also don’t have to sell all of their Offshore Storage at once. They are free to mint back smaller amounts and sell them for the value they were minted at.
Long term, Haven Protocol’s vision is to have the usability of a standard online bank app or PayPal/Venmo with complete anonymity. With adoption, users won’t have the same requirement to mint back XHV from their XHVD as they can utilize and transfer XHVD just like USD.
Could someone manipulate the price of XHV in order to lower it to burn a lot of XHV coins for more XHVD — then pump up the price and mint back more XHV than they started with?
This would be an extremely expensive exercise. In order to profit, you would need a large amount of funds — to the point where the cost of manipulating Offshore Storage in this way is not significantly different to the cost of manipulating any market.
Fundamentally this sort of manipulation would work like this:
- Purchase xXHV
- Offshore bXHV -> mXHVD = bXHV *CurrentPrice
- Sell sXHV (to lower the price to Original price/f — e.g.1/2 the current price and maintain for 20 blocks)
- Onshore mXHVD -> oXHV = mXHVD /(CurrentPrice/f)
- Buy pXHV (in order to raise the price — e.g. back to the Original Price and maintain for 20 blocks)
If p + o > x a profit is realized.
In order to determine if this is profitable, you have to determine or make a lot of assumptions and derive values for f, s and p.
You could make the assumption that it costs the same amount of XHV to lower the price as it does to raise it back up. Bear in mind that the cost of this is difficult to determine, as a manipulator would need to maintain the price at the low value for 20 blocks and at the high price again for 20 blocks — a total of 80 minutes over every exchange as the algorithm that determines the XHV/XHVD exchange rate used a weighted average.
The more you sell, the more it costs you, as you would be selling your XHV for up to 1/f of what it is worth.
x = b+2p
p+o > b+2p
o > b +p
We also have discussed this and other game theories at length in the discord channel. MyCryptoNinja has put together a trello board and has included some screenshots of discussions that have taken place: https://trello.com/c/fdCroy1g/4-game-theories