“An asset backed by data? Isn’t that just a stablecoin with extra steps?”

Sure, while H2O might resemble some variation of a stablecoin like USDC or DAI, there are some key differences which allow it to fit in with the Ocean Protocol. Let’s take a look at H2O’s composition.

H2O is a fork of RAI, Reflexer’s non-pegged and decentralised stableasset backed by ETH. To clarify, stableassets are not pegged to a particular “currency” rather, they are pegged to some defined number. On the other hand, stablecoins are pegged to a currency (i.e. USDC and DAI). RAI stands out because of its unique structure, as it’s the only stableasset backed by ETH. However, since ETH is such a volatile asset and is subject to unsavoury price action, it doesn’t make for an elite unit of exchange.

RAI helped usher in a world where stableassets are less governance intensive and more of a flexible, self-governing unit of exchange. Stablecoins like USDT and USDC - while reputable - are centralised, the exact opposite ideal for a financial system with decentralisation sitting atop its list of core tenets.

By adopting the principles of RAI (minimised governance and an asset detached from fiat), the H2O token can properly serve as a stable unit of exchange on the Ocean Market - without all the swings that come from the OCEAN token. The price of H2O is based on algorithms that work to maintain an equilibrium between backing and market price, similar to how RAI functions. H2O is not pegged to anything, but it delays most of the volatility present in the underlying capital. In short, right now H2O is an Ocean backed, non-pegged stableasset whose monetary policy is managed by an on-chain, autonomous controller. In Q3 2022, H2O will transition to being data-backed, not just Ocean backed.

How can you get your hands on some H2O? We’re glad you asked.

Users can deposit OCEAN into SAFEs (similar to vaults) and can then mint H2O as collateral. These tokens then flow back into the Ocean Market for users to transact more efficiently. By Q3, H2O will be data backed, meaning less volatility and representative of a concrete relation between Ocean Protocol and H2O.

Our launch date is fast approaching, so if you want to stay up to date with everything H2O related, follow our social accounts.