Over the past year, it has become clear that decentralized finance faces a trifecta of challenges that hinder mainstream adoption. These can be broadly characterized as vulnerability to exploits, lack of standardization, and regulatory uncertainty. Haven1 is a Layer 1 blockchain incubated by Yield App which aims to address these challenges head-on and rebuild faith in the crypto ecosystem. Read on to find out how.
A challenging year
During 2022, several catastrophic events eroded user faith in crypto. In May, Terra's algorithmic stablecoin came crashing down in a death spiral. A month later, Celsius, one of the largest crypto lenders, went bankrupt, followed by the implosion of crypto exchange FTX in November. These black swan events left users nursing billions in losses.
In addition, crypto fraud has been on the rise. During 2022, some $3.8 billion was exploited, 82% of which came from the DeFi sector, according to the Chainalysis Crypto Crime Report. Coupled with the lack of proper risk controls and guardrails, this has made retail users and institutional investors wary of DeFi.
These incidents inevitably caught the attention of regulators such as the Office of Foreign Assets Control (OFAC). As regulators redoubled efforts to combat money laundering and terrorist financing, the number of sanctioned crypto addresses tripled in 2022.
This increased regulatory scrutiny has, in turn, led to greater compliance risk for corporations and institutional funds. Yet regulatory clarity is still sorely lacking in most jurisdictions.
READ: The rise of institutional interest in DeFi
As a result of these events, it has become evident that the DeFi space is fraught with security and regulatory risks and still unfit for mainstream adoption. In today’s landscape, there is no suitable solution for those who want to transact securely on-chain.
Haven1 is designed in direct response to these key challenges. We believe the time has come for a secure, compliant and environmentally friendly digital financial ecosystem to finally bring digital assets into the mainstream.
Haven1: The destination for secure on-chain finance
Haven1 is a purpose-built Layer 1 blockchain incubated by Yield App and designed with security and scalability in mind. It combines traditional finance's recourse mechanisms and security guardrails with the unique features of the DeFi world, unlocking previously unattainable use cases.
Haven1 utilizes an environmentally friendly Proof of Authority (PoA) consensus mechanism to enable network-level risk controls and ensure regulatory compliance without sacrificing privacy.
The current blockchain landscape
Since Bitcoin's inception in 2009, the on-chain ecosystem has grown from basic infrastructure to include diverse and exciting applications and use cases. Stablecoins, DeFi and NFTs have attracted more than 425 million crypto owners to the Web3 space, according to crypto.com's Crypto Market Sizing Report.
To date, there are more than 170 active blockchains in the market, yet not a single one offers:
Network-level risk controls
Proper recourse mechanisms in the event of fraud or the loss of funds
Protection against legal uncertainty
These recourse mechanisms are paramount to encourage mainstream adoption and attract billions in institutional capital that would lend legitimacy to the entire crypto market.
The key reason for this is the irreversible nature of blockchain transactions. This leaves users at risk of losing their funds due to mistakes or fraud. At the same time, the permissionless nature of blockchain means institutions have been largely unable to participate in the burgeoning DeFi ecosystem.
Haven1 is designed to change this. At launch in 2024, Haven1 will be the first blockchain that combines the best of both worlds: security and recourse in the event of malicious activity with the exciting innovations of DeFi.
Scalable, ESG-friendly and fully EVM-compatible
Haven1 is built to complement Ethereum and is naturally compatible with the Ethereum Virtual Machine (EVM). In the future, it is Haven1’s intention to seamlessly transition directly from a sidechain to a rollup using Ethereum as the settlement layer.
READ: How permissioned DeFi can attract institutional capital to Web3
Haven1 is built to support the future digital economy. As such, it is scalable and ESG-friendly. This will allow Haven1 to support the mainstream adoption of crypto without compromising the environment.
Haven1 introduces a provable identity framework, which fosters trust between users and validators. Under this framework, certain actions on the blockchain will require users to verify their identity.
Whenever a user initiates a transaction, network validators must cross-check anonymized user data against a database to ensure the user is not the subject of sanctions or other regulatory restrictions. This ensures the security of the network while protecting user data.
Real-world assets on-chain
Haven1 will consist of three core protocols, which will be rolled out during the first quarter of launch in the following order:
An automated market maker
A borrowing and lending market
A derivatives platform
In combination with the provable identity framework, these protocols enable real-world use cases that are currently not possible in the anonymous and unregulated world of DeFi.
These novel use cases include the potential to create lending markets with real-world credit scores as reputation backstops. Such an innovation would facilitate forms of undercollateralized lending, such as traditional mortgages.
Integration with real-world assets that require proof of identity will also become possible. This includes investment vehicles backed by real estate assets, for example.
Finally, the provable identity framework enables the efficient global exchange and settlement of tokenized digital assets, such as securities and bonds. This could potentially migrate the trillions of dollars currently exchanged through traditional financial markets on-chain.
A pivotal moment
Blockchain technology is at a pivotal moment in its evolution. Despite the catastrophic events of 2022, crypto markets have rebounded in 2023 and Web3 continues to attract new users. However, if we want to see mainstream adoption of Web3, we must address the root causes of last year’s crypto crisis.
It’s time for a safer Web3 experience. The launch of Haven1 in 2024 will meet the growing user demand for compliant, sustainable, and secure on-chain finance, solidifying the use case for blockchain as an innovative alternative to traditional finance.
This piece is part of a six-part series on Haven1. The second piece focuses on the rising instances of crypto fraud and how Haven1 will address this issue. Read it here.
DISCLAIMER: The content of this article does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up, and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.