Introduction to Havven's multicurrency system
At Havven we relentlessly pursue innovation. We are passionate about exploring the possibilities of decentralized systems and pioneering the most impactful implementations of this revolutionary technology. It is therefore with much excitement that we announce our latest development: Havven’s Multicurrency System.
The purpose of the multicurrency implementation is to allow seamless swaps between multiple fiat currencies for users of nomins, our stablecoin. Allowing users to send and receive different currencies without needing to manage exchange rates or other kinds of friction will significantly add to the usability of the Havven Payment Engine.
A historical illustration of a multicurrency system
In order to understand how Havven can support multiple currencies, it is worth returning to the story of gold backed certificates. This time, we will extend the story further than before to cover multiple exchange rates.
Imagine you have $1m in gold. You want to use this gold for trade, but it is not easily transportable. So you decide that rather than using the gold directly, you will create notes that are backed by a claim against the gold. You issue a note that is redeemable for a fixed quantity of gold — say, 1g — allowing you to use the gold to purchase goods without needing to transport it.
While this is an improvement over using the gold directly for trade, there are some compromises with this approach. For example, people accepting the certificates will need to trust you to keep enough gold to redeem them. A larger issue arises if goods are not typically priced in gold in your economy. If they are actually priced in dollars, then as the price of gold fluctuates against dollars, the purchasing power of your certificates will fluctuate.
In order to improve the certificates again, you decide that you will issue certificates with a fixed dollar value, rather than a fixed gold quantity. In this case, you issue a certificate that is worth 10 dollars of gold. This means that even if the exchange rate between gold and dollars shifts, the purchasing power of the certificate will remain stable.
This solves the price volatility problem, but you must be careful not to issue too many certificates. You decide to keep a reserve of gold in place in case the value of gold drops and you don’t have enough to redeem all of your certificates. This is clearly more challenging than the previous type of certificate where you knew exactly how many grams of gold you had and could issue the entire amount. However, the additional complexity is worth it, as people love the certificates and start using them in place of their own gold. Due to the limited supply and the additional utility the certificates provide, the price of the certificates begins to trade above the face value of the gold.
At this point, you start charging a small fee for redeeming the gold. People are willing to pay it because the certificates are so useful, yet the price of the certificates keeps increasing because of the heightened demand.
The next evolution of the concept is to let people deposit their gold with you, issue certificates against that gold, and then pay them a percentage of the fees generated. This idea garners a lot of interest, and gold owners line up to deposit their gold with you. This allows you to issue more certificates, increasing the supply and bringing the price of the certificates closer to the face value of the underlying gold.
This system is whirring along without a hitch until one day someone comes to you with a problem: she is headed to a foreign country that does not use dollars, so she needs to withdraw all of her gold to take with her. As she bemoans the inconvenience of the process, you offer her a better alternative: Instead of withdrawing the gold, you will issue new certificates denominated in this foreign currency.
You swap out her certificates for new certificates that provide a claim on the gold in ducats, rather than dollars. To facilitate this swap, you simply look up the exchange rate between ducats and dollars and see that it is 2:1, so you issue twice the number of certificates and send your customer on her way.
Upon her return, she asks to swap back into certificates denominated in dollars. She tells you that everyone in this foreign country was very impressed with the new certificate system, and that you ought to consider expanding the business, so that is exactly what you do. Eventually, certificates in fifty different currencies are issued all over the world and all backed by the same gold, which is now distributed in various locations.
How Havven’s implementation works
This example summarizes stablecoin development over the past few years, and also demonstrates how Havven can support multiple currencies. By charging fees to users of nomins in any currency, the network is able to support multiple currencies seamlessly. Each nomin is still supported by the underlying collateral pool made up of Havvens, except now you have multiple flavours of nomins that can be exchanged for each other directly — without needing to go through a central exchange.
The utility and efficiency of such a multicurrency is truly limitless. Imagine the following scenario:
A business owner in the US hires a web developer in the Ukraine to build and maintain a website for the business. For simplicity’s sake, let’s say they agree upon a USD $1,000 per week salary. PayPal does not currently support such a transaction, so they turn to an alternative platform. Using a credit or debit card, MoneyGram and Western Union would both charge ~$50 for this transaction, with the promise that it will take mere minutes. By attaching a bank account for the transaction, they could reduce the fees from $50 to around $12, but this would also extend the transfer time out to 3–4 business days. In either case, it would cost an additional 1–2% for the Ukrainian developer to convert the payment from USD to UAH, bringing the total transaction cost to upwards of 7%.
The trade-off between cost effectiveness and time efficiency is the primary plague of the incumbent money transfer industry. Every single transfer lands somewhere on this sliding scale of friction versus expense. Now, let’s see what it would look like if our businessman and developer could have their cake and eat it too:
Rather than using a traditional money transfer service, the businessman uses Havven. He submits his USD $1,000 payment to the Havven network where the exchange rate is calculated and a small (currently 0.15%) fee is deducted. His 1,000 USD-pegged nomins are swapped out for ~28,140 UAH-pegged nomins which are then deposited into the developers wallet. This transaction happens in a matter of minutes, and costs a fraction of the fees traditional money transfer services charge. Regardless of when the developer gets around to transferring them out for fiat, the UAH-pegged nomins will still be worth the correct amount, thanks to Havven’s stability mechanisms.
The implementation of a multicurrency stablecoin within the Havven payment engine is the next great advancement in stablecoins. This mechanism has the potential to redefine fiat-to-fiat transactions as we know them, all while keeping fees and transaction times minimal. Stay tuned for further announcements about the launch of the Havven multicurrency system, and join the conversation with the Havven community on Discord!