There are an increasing number of stablecoins being brought to market and experimented with. They can broadly be separated out into two distinct types: collateralised and algorithmic.
Collateralised use actual fiat currency stored in a bank to back the stablecoin 1:1.
There are several potential issues with this method including:
- Lack of transparency for proof of reserves
- The reserves could be seized by authorities and accounts frozen
Algorithmic use several different models in which to maintain the peg and can also require large over-collateralisation of positions held in order to prevent liquidation. Some models require a user to deposit 500% or more before they can use the stablecoin for its intended purpose.
This article won’t be looking at other protocols in detail but will give an overview of some of the benefits of using xUSD.
What is xUSD?
It is the first asset that’s been added to the Haven network, having been launched to mainnet in July 2020, and is pegged to the US Dollar. It’s a synthetic digital representation of a dollar bill and we’ll see how it possesses many of the qualities of paper money later in this article.
When xUSD is used within the Haven network it is the only US Dollar stablecoin that cannot break its peg.
This is due to the promise of the protocol that…
1 xUSD will always be convertible to 1 USD worth of XHV
Details of how this promise works can be found in the Haven Whitepaper: https://havenprotocol.org/whitepaper/
Why choose xUSD?
xUSD works very differently to the vast majority of existing stablecoins as it is not collateralised by money held in bank accounts. It works by utilising XHV (Haven’s volatile base currency) as the network collateral.
This means it is not reliant on access to banking services or centralised control of the collateral. It is important to note that every user of xUSD is entirely autonomous.
- The only fully fungible USD stablecoin giving it true cash like properties
Due to the inherent privacy feature set of Haven (and xUSD) it gives each unit complete fungibility, meaning that, unlike some other cryptocurrencies, they maintain cash-like properties as no xUSD can be blacklisted or otherwise marked as unusable.
Read about Haven’s privacy here: https://havenprotocol.org/knowledge/is-haven-private/
- Private accounts, balances and transactions
All critical functions of xUSD are carried out with privacy by default and it’s not possible to accidentally use it without the privacy intact. This can be very important for users who wish to maintain privacy for personal safety as well as businesses who wish to protect commercially sensitive information. This is a very different model to opt-in privacy that has additional user friction and requires both parties in a transaction to utilise the private ‘option’ for end to end privacy.
- User controlled option to allow access to account/tx info
A user can choose, if they wish, to share an account balance or details of a transaction with a 3rd party by using the private view key. This can be where certain regulations or rules require information to be voluntarily disclosed.
- It will never lose it’s peg when used in the vault
xUSD cannot lose it’s peg when used within the Haven vault due to the promise that 1 xUSD will always be redeemable for 1 USD worth of XHV. This gives users complete confidence that their stored wealth will always maintain it’s value.
- Not reliant on bank deposits to remain collateralised
xUSD does not rely on bank reserves to maintain any form of collateralisation and cannot therefore be shut down by a loss of banking services.
- Not controlled by a central company or entity
It is not controlled by any central authority and each user is fully independent and able to use xUSD as they see fit regardless of location or status.
- Always convertible to any supported xAssets with no limit on liquidity
xUSD can always be converted to any of the other supported xAssets without any limits on liquidity. The ‘mint and burn’ model employed by Haven ensures that any amount can always be changed.
- Zero slippage when converting
Unlike using traditional exchanges you can convert any amount between all assets with zero slippage ensuring that you get a fixed conversion rate for 100% of the amount being changed.
- No 3rd party needed when converting
There is no requirement for a 3rd party when converting to/from xUSD in the Haven vault. This eliminates counterparty risk and maintains complete user privacy during the process. Users are always 100% in control of their private keys and therefore their money.
- Backed by PoW security
The network is backed by Proof-of-Work meaning actual energy and money has gone into backing the currency.