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FAQ
Frequently asked questions about H2O and POSEIDON

How does H2O work from the User’s perspective?

Users can simply buy/sell H2O via their favorite DEX.
Advanced users can deposit $OCEAN into a type of “Vault” Smart Contract called a “SAFE” in order to borrow H2O from the system. Generally, a Vault Smart Contract allows users to deposit a specific type of collateral, in order to generate another type of asset. Specifically, in this case, $OCEAN is deposited to generate (borrow) $H2O.
Advanced users may also add H2O or PSDN liquidity to H2O and PSDN pairs on AMM-based DEXes. In doing so, they will earn LP fees and (in select pairs) earn PSDN liquidity mining rewards.
Finally, H2O will be found in Ocean Market and other Ocean-powered data markets as a unit of exchange to buy/sell datatokens, and for staking in datapools (when a given market supports H2O).

How does H2O work/behave?

The long term price trajectory of H2O is determined by the demand for OCEAN leverage. H2O tends to appreciate if SAFE users deleverage and/or H2O users long and it depreciates in case SAFE users leverage and/or H2O users short. To better understand how H2O behaves, we need to analyse its monetary policy which is made out of four elements:
  • Redemption price: this is the price that the protocol wants H2O to have on the secondary market (e.g on Uniswap). The redemption price is used by SAFE users to mint H2O against OCEAN and it is also used during Global Settlement in order to allow both SAFE and H2O users to redeem collateral from the system. The redemption price almost always floats and it does not target any specific peg.
  • Market price: this is the price that H2O is traded at on the secondary market (on exchanges).
  • Redemption rate: this is the rate at which H2O is being devalued or revalued. The process of devaluing/revaluing H2O consists in the redemption rate changing the redemption price
  • Global Settlement: settlement consists in shutting down the protocol and allowing both SAFE and H2O users to redeem collateral from the system. Settlement uses the redemption (and not the market) price to calculate how much collateral can be redeemed by each user.
Let's walk through an example of how H2O is revalued in case of OCEAN capital inflow (aka people are bullish on OCEAN):
  • At time T1: OCEAN price is $500, H2O's market and redemption prices are both $5.
  • At time T2: OCEAN price surges to $1000. H2O SAFE users suddenly have more borrowing power and generate more H2O against their collateral. SAFE users sell H2O on the secondary market, causing H2O's market price to crash to $4.
  • At time T3: OCEAN remains at $1000 and H2O's market price is still $4. The system wants the market price to get close to the redemption price. In order to eliminate the imbalance between the market/redemption prices, the system starts to revalue H2O. Revaluing consists in setting a positive redemption rate which makes the redemption price grow every second.
  • At time T4: OCEAN remains at $1000. H2O's redemption price is now $5.1. SAFE users are starting to realize that they can now borrow less H2O per one OCEAN, they can redeem less OCEAN during Settlement (because H2O is now more expensive) and that it will be more expensive to close their SAFE once the market price follows the redemption price. At the same time, H2O holders are starting to realize that they can redeem more and more OCEAN during settlement.
  • At time T5: OCEAN remains at $1000. H2O's redemption price is now $5.2. H2O's market price surged to $5.2 as a result of SAFE users buying H2O in order to close their positions as soon as possible instead of later on when H2O is more expensive.
When H2O is devalued (in case of OCEAN capital outflow), the opposite thing happens:
  • SAFE users realize that they can mint more H2O against their OCEAN and that they will be able to buy cheap H2O once the market price tanks
  • Token holders realize that they can redeem less OCEAN during Settlement and they need to short H2O

Can you summarize the behavior of the H2O redemption rate?

  1. 1.
    When H2O's market price > redemption price for a sustained period of time, the redemption rate will become negative
  2. 2.
    When H2O's market price < redemption price for a sustained period of time, the redemption rate will become positive
  3. 3.
    When H2O's market price = redemption price for a sustained period of time, the redemption rate will settle at a steady-state (that may be non zero)

What is H2O in technical detail?

H2O is a friendly fork of Reflexer’s RAI, using OCEAN as collateral. RAI itself is a fork of MakerDAO’s multi-collateral DAI, with key change to minimize governance by automating several parameter changes. Here is a more thorough list of improvements:
  • Understandable variable names
  • An autonomous feedback mechanism that changes the incentives of system participants
  • The possibility to add insurance for SAFEs
  • Fixed and increasing discount auctions (instead of English auctions) used to sell off collateral
  • Automatic adjustment of several parameters in the system
  • A set of contracts that bound control over parameters that are governed in the long run
  • The possibility to send stability fees at once to multiple addresses
  • The possibility to switch between surplus auctions and other types of strategies meant to remove surplus from the system
  • Two prices for each CollateralType: one used for generating debt, the other one used exclusively when liquidating SAFEs
  • A stability fee treasury that can pay for oracle calls, market making or teams who onboard collateral and take care of the system
Whereas RAI is a stableasset backed by ETH, H2O is backed by Ocean Protocol’s OCEAN token.
H2O is an OCEAN-backed stable asset with a managed float regime. The H2O/USD exchange rate is determined by supply and demand while the protocol that issues H2O tries to stabilize its price by constantly devaluting or revaluing it.
The supply and demand mechanic plays out between two parties: SAFE users (those who generate H2O with their OCEAN) and H2O holders (those who hold, speculate on or use H2O in other protocols and apps).
Compared to protocols that try to defend a fixed exchange rate between their native stable asset (pegged coin) and fiat (DAI/USD, sUSD/USD etc), H2O monetary policy offers a couple of advantages:
  • Flexibility: the protocol can devalue or revalue H2O in response to changes in H2O's market price. This process transfers value between SAFE users and H2O holders and incentivizes both parties to bring the market price back to a target chosen by the protocol. The mechanism is similar to countries devaluing or revaluing their currencies in order to combat a trade imbalance. The "trade imbalance" in H2O's case happens between H2O and SAFE users
  • Discretion: the protocol itself is free to change the target exchange rate to its own advantage. It can attract or repel capital whenever it wants.
  • At the same time, a managed float can cause uncertainty due to the fact that the price varies day by day. This uncertainty can be beneficial though: developers are incentivized to build all sorts of derivative products on top of H2O (such as futures and options) in order to take advantage of its repricing mechanism.

GEB Overview Diagram

GEB is a framework for deploying systems that can issue stablecoins. H2O (stable asset) won’t look like this (that’s a pegged coin), but rather like this.
Explore the diagram in detail here.

Is H2O a stablecoin?

No, it’s a stable asset. A stablecoin is pegged to a fiat currency such as $1 USD. In contrast, H2O is a non-pegged stable asset that works to stay at its current price.
For example, if the price of H2O was at $4.20 it would work to stay at that price. Stablecoins are oscillating around a specific value (usually pegged 1:1 to fiat such as USD, EUR etc). H2O, on the other hand, is not pegged to anything. The system behind H2O only cares about the market price getting as close as possible to the redemption price. The redemption price will almost always float (thus, it won't be pegged) in order to compel system participants to bring the market price toward it.

Why should I stake on H2O?

Stakers are in charge of protecting the H2O protocol from insolvency. They stake PSDN/OCEAN Uniswap v3 LP tokens in a smart contract that then constantly checks whether H2O is well-capitalized. In case the protocol is undercapitalized (has debt that is not backed by collateral), the staking pool will start to auction PSDN/OCEAN LP tokens in exchange for H2O that is then used to bring the protocol above water. Stakers will get diluted in this process. In exchange for protecting the protocol, stakers receive more PSDN.

Is H2O a rebase token?

No. The protocol doesn't change the amount of tokens you have. Rather, it changes the target price that the protocol wants H2O to have on exchanges.

Why would I hold H2O when the system devalues the token?

This is exactly what the system wants you to ask yourself when it charges a negative redemption rate. The system is trying to incentivize H2O holders to sell and bring the market price down and close to the redemption price.

How does H2O affect current $OCEAN token holders?

RH2O’s lower volatility will catalyze usage of Ocean Market and other Ocean-powered markets. Increased usage leads to increased fees to the Ocean protocol, driving the value of $OCEAN.
Additionally, OCEAN holders now have an opportunity to leverage-up their OCEAN, by taking loans of H2O against it then putting the H2O to use in the Web3 Data Economy and in DeFi.
H2O is an excellent unit-of-exchange token for the Web3 Data Economy. OCEAN and H2O are complementary: OCEAN is volatile and H2O is stable.
  • OCEAN is the baseline token for near-term growth and long-term sustainability of the Ocean ecosystem; as ecosystem usage grows then OCEAN accrues value. However this means OCEAN is a volatile token.
  • In contrast, H2O is a stable asset. As such, it’s highly useful wherever lower volatility is beneficial, most notably to reduce volatility of data prices for publishers, consumers, and stakers in Ocean Market and other Ocean-powered data marketplaces.

What is the Money God League?

The Money God League is an initiative, founded by the Reflexer team, meant to bring non-pegged stable assets into the mainstream. The League is also devoted toward making control theory a common framework used in a wide variety of DeFi related projects.

What is Reflexer Labs role in the initiative?

Reflexer Labs has shared its PID-related code with the H2O team, and has continually offered helpful advice in rolling out H2O.
The Reflexer community benefits from the rollout and growth of H2O, as we are providing PSDN rewards to Reflexers LP incentives.

Isn't H2O growth bounded by OCEAN growth?

Short answer: yes. Nevertheless, we decided to build for the Ocean ecosystem with OCEAN token for several reasons:
  • Data as an asset class: we believe there will be enormous growth in data as an asset and the Ocean Protocol ecosystem’s ability, with its first-mover advantage, to capitalize on this growth.
  • Social scalability: we believe the most successful DeFi protocols will be the ones that act as a trust-minimized operating system. You can build on top of them without the fear that the rules will drastically change and break your application. For this reason we also want to progressively remove control over H2O.
  • Simplicity: it is easier to explain H2O's behaviour backed by OCEAN as opposed to a basket of assets.
  • First step in a journey. A system backed by a single collateral type (OCEAN) is easier to manage than a multi-collateral one. It allows us to test our hypotheses without layering extra risk and overhead. We are excited to go multi-collateral, specifically to include backing by data assets themselves (Ocean datatokens).

How do you plan to grow H2O so it achieves its maximum potential?

H2O is meant to help projects in the Ocean Ecosystem take advantage of its redemption rate as well as provide a more stable source of borrowing power. We believe that growing alongside other projects and helping builders leverage H2O will make the protocol successful.

What happens to H2O if the price of $OCEAN drops?

The protocol will adjust its redemption rate in order to try to maintain its current price using the well vetted Proportional-Integral-Derivative (PID) controller made famous in Control Systems Engineering. Additional information about the PID controller can be found here.

What is the potential for price fluctuations with the H2O system?

It can be thought of as a “price-dampened” instrument relative to the price of $OCEAN. As with any financial instrument, its value can fluctuate up or down.

What happens if the redemption rate is positive and I just add more collateral in my SAFE instead of repaying my debt?

Two things can happen in this case:
  • H2O holders/users (who know that a higher redemption price means that they can redeem more collateral in case the system is settled) can still long H2O and make the market price go above redemption. Once the market price goes up, it will be more expensive for you to buy H2O and repay your SAFE's debt.
  • Your capital efficiency will decrease because you need to add more and more collateral just to maintain your current collateralization ratio.

What is the difference between the redemption rate and the borrow rate?

A system like H2O has two types of rates:
  • The borrow rate which is an interest rate charged on open SAFEs. The borrow rate will usually be fixed or bounded
  • The redemption rate: this is the rate at which H2O (or H2O-like assets) are devalued or revalued

Why would I want to hold something that is not pegged and yet does not behave like OCEAN, ETH or BTC?

We often get this question from people who are used to holding assets such as DAI or USDC which seem more "stable" because they try to target a specific peg. While it is true that the mechanism behind H2O may cause more uncertainty vs pegged coins because of the floating redemption price, it also comes with its own perks:
  • H2O is trader friendly. A trader can, for example, analyze the market sentiment as well as look at the current redemption rate in order to decide on whether they should long or short H2O
  • H2O holders (longs) can benefit from exposure to a positive redemption rate (revaluation)
  • Shorts may also benefit from H2O devaluation
It is also worth considering that only some fiat currencies are pegged, while others float and they are still considered "stable". Check out this classification of exchange rate arrangements which shows the full spectrum of stability.

Is there a minimum lockup period?

With respect to depositing OCEAN into SAFEs, there is no lockup period being implemented when depositing OCEAN to mint $H2O. However, before the “ungovernance” / decentralization / governance minimization process is complete, POSEIDON token holders may vote to change this and other system parameters.
With regards to the staking pool, the following are being considered for main net:
  • Exit delay (thawing period): 21 days
  • Reward unlock period: 3 months. Locked rewards are unlocked linearly during a 3 month time period from the moment a staker requests that they claim their rewards
  • Percentage of rewards unlocked over 3 months: 75%
  • Percentage of rewards that can be claimed right away (no unlock): 25%
  • Percentage of LP tokens in the pool that can be slashed/auctioned: 30% (the rest of the pool isn't auctioned/slashed)

Why are the advantages of minting H2O?

We have both short and long term plans meant to attract borrowers and improve the experience of interacting with the protocol:
  • Getting paid for opening and managing SAFEs: when H2O is devalued, SAFE users are "paid" because the value of their debt shrinks compared to the value of their collateral.
  • Capped borrow rate: in the long run, H2O will have a capped (and small) borrow rate which makes the cost of maintaining a SAFE more predictable.
  • Governance can, in theory, set the borrow rate to 0% although this prevents the system from accruing surplus that's used to incentivize keepers to update core components such as oracles and the PID. A 0% borrow rate would also prevent the protocol from building a surplus buffer meant to settle bad debt that couldn't be covered by collateral auctions.
  • Insurance for SAFEs: in the long run we can allow SAFE users to attach a wide variety of insurance contracts meant to protect their positions against liquidation.
  • No exposure to assets with counterparty risk: H2O will initially only be backed by OCEAN - and plans for V2 are to include data tokens themselves. Borrowers are not exposed to riskier crypto assets or real world collateral.
  • Superior collateral factors: as we improve the efficiency of our collateral auctions and add insurance contracts for SAFEs, we can lower the collateral requirements for borrowing H2O.

What are H2O's use-cases?

The following is a non-exhaustive list of use-cases we envision for H2O:
  • Usage of H2O in Ocean Market and other Ocean-powered data marketplaces, in pricing data and in data pools. Using H2O reduces volatility of data prices compared to using OCEAN directly. This will benefit various users: data providers will have more predictable revenue; data consumers will have more predictable cost; and datapool stakers will have reduced risk of impermanent loss.
  • Usage in other Web3 Data Economy dapps & protocols, including: data wallets, data DAOs, data DEXes, data loans, and more.
  • A unit-of-exchange for charging absolute-value fees in Web3 Data, where fees remain relatively stable.
  • OCEAN holders get more leverage with their OCEAN tokens in performing other operations in the Web3 Data Economy and in DeFi.
  • When H2O also supports data assets (Ocean datatokens), then datatoken holders get more leverage with their datatokens in performing other operations in the Web3 Data Economy and in DeFi.
  • Usage in broader DeFi ecosystem: Developers can build protocols such as, but not limited to perpetuals, futures, options, arbitrage systems on top of H2O. This will become especially interesting when H2O is backed by data assets and the total capitalization of the assets gets closer to their trillion-dollar potential.
  • Source of yield: traders can earn "yield" when H2O's market price follows the redemption price.
  • DeFi collateral: H2O can be used as an OCEAN supplement or alternative collateral in DeFi protocols due to the fact that it dampens OCEAN's price moves and gives users more time to react to market shifts.
  • DAO reserve asset: DAOs can keep H2O on their balance sheet and get exposure to OCEAN without being affected by its full market swings.

Will H2O always return to the same initial value/peg?

H2O is not designed to be pegged to anything, so it may never return to the same value it started at. Similar to many fiat currencies (EUR, GBP etc), H2O will float around, being influenced by market forces (supply & demand) and by the incentives that the PID controller offers to SAFE users and H2O holders.

What are the assumptions behind H2O's mechanism?

H2O's success depends on three main factors:
  1. 1.
    Narrative: similar to other protocols (ranging from Multi Collateral DAI to L1's such as Bitcoin and Ethereum), people need to believe that a system works in order for it to actually work.
  2. 2.
    Liquidity: the more liquidity H2O has, the harder it is for malicious parties to manipulate its market price.
  3. 3.
    The presence of arbitrageurs: similar to other stable assets, there need to be traders who arb the difference between the asset's market and redemption (or target) prices.
It's worth noting that the narrative attracts liquidity and arbitrageurs which in turn can further strengthen the narrative.

How will the liquidation process work?

A SAFE is a type of “Vault” Smart Contract which allows users to deposit a specific type of collateral, in order to generate another type of asset. Specifically, in this case, OCEAN is deposited to generate (borrow) H2O.
Keepers are users whose job is to make sure that the required surplus of collateral exists within the protocol at all times. Specifically, they scan for any SAFEs that are under-collateralised and trigger a liquidation (auction of assets) occurs if the collateralization ratio of a SAFE (debt position vault) falls below the required minimum level, called the Liquidation Ratio.
During the Liquidation process, enough collateral is sold to cover the debt along with a Liquidation Penalty, leaving the remaining collateral available for withdrawal. Typically, another class of Keeper will scan the blockchain for auctions and participate in them.
We will be launching Safe Saviors and other insurance-like tools to reduce the possibility of liquidations, soon after launch.

How is the price of H2O adjusted in real-time?

We use a Chainlink oracle in order to report the price in such as way that it is relatively immune to the possibility of a flash loan attack. The PID controller is tuned in such a way that it avoids excessive thrashing.

What is the simulation model of the H2O ecosystem?

We have adapted several open source models (in part created by Block Science) and Reflexer Labs to understand the effects of various system parameters and price scenarios on the H2O system, and helping to choose the best starting parameters. A simulation report will be released ahead of the protocol launch.
An advanced version of the simulation model will be deployed post launch to understand the current state of the system, and attempt to forecast the effects of parameter adjustments before they are made, in effect an in-silico laboratory.

What are the risks of providing liquidity?

There is always the possibility of liquidation within similar DeFi Protocols, however Safe Saviors and other tools will be made available soon after the launch of H2O which will mitigate any risks associated with liquidation.

How much $OCEAN will be deposited as collateral in the H2O system?

The exact amount needed will be dictated by the volume of Ocean Market, which is expected to be the primary source of demand for $H2O.

How does the H2O ensure lesser centralization? Is H2O fully decentralized?

As many protocols, we are working hard to decentralize the protocol. Similar to RAI’s FLX, we regard H2O’s PSDN as an “ungovernance token” meant to eventually give up power and responsibility of the protocol in favor of increased automation.

What are the benefits to the Ocean community?

H2O represents a novel use case for $OCEAN; that of reserve asset within the datatokens ecosystem.

How would you differentiate H2O from other non-pegged stable assets in the market?

H2O is designed for use within Ocean Market, and is the only one that uses $OCEAN as the collateral asset, uniquely aligning its incentives with the growing Ocean ecosystem and Web3 Data Economy.

Can you give an example of how H2O will behave on account of Ocean capital inflow/outflow?

Let's walk through an example of how H2O is revalued in case of $OCEAN capital inflow (aka people are bullish on $OCEAN):
  • At time T1: OCEAN price is $5, H2O's market and redemption prices are both $0.05
  • At time T2: OCEAN price surges to $10. H2O SAFE users suddenly have more borrowing power and generate more H2O against their collateral. SAFE users sell H2O on the secondary market (Uniswap), causing H2O's market price to crash to $0.04.
  • At time T3: OCEAN remains at $10 and H2O's market price is still $0.04. The system wants the market price to get close to the redemption price. In order to eliminate the imbalance between the market/redemption prices, the system starts to revalue H2O. Revaluing consists in setting a positive redemption rate which makes the redemption price grow every second.
  • At time T4: OCEAN remains at $10. H2O's redemption price is now $0.051. SAFE users are starting to realize that they can now borrow less H2O per one OCEAN, they can redeem less OCEAN during Settlement (because H2O is now more expensive) and that it will be more expensive to close their SAFE once the market price follows the redemption price. At the same time, H2O holders are starting to realize that they can redeem more and more OCEAN during settlement.
  • At time T5: OCEAN remains at $10. H2O's redemption price is now $0.052. H2O's market price surged to $0.052 as a result of SAFE users buying H2O in order to close their positions as soon as possible instead of later on when H2O is more expensive
When H2O is devalued (in case of OCEAN capital outflow), the opposite thing happens: SAFE users realize that they can mint more H2O against their OCEAN and that they will be able to buy cheap H2O once the market price tanksToken holders realize that they can redeem less OCEAN during Settlement and they need to short H2O

Will I be charged fees?

There is a borrow rate charged on an ongoing basis, sort of like an interest rate. There is no fee at minting.

How will I be incentivized to be an H2O holder?

We have both short and long term plans meant to attract borrowers and improve the experience of interacting with the protocol:
  • Getting paid for opening and managing SAFEs: when H2O is devalued, SAFE users are "paid" because the value of their debt shrinks compared to the value of their collateralCapped borrow rate: in the long run, H2O will have a capped (and small) borrow rate which makes the cost of maintaining a SAFE more predictable.
  • Governance can, in theory, set the borrow rate to 0% although this prevents the system from accruing surplus that's used to incentivize keepers to update core components such as oracles and the PID. A 0% borrow rate would also prevent the protocol from building a surplus buffer meant to settle bad debt that couldn't be covered by collateral auctionsInsurance for SAFEs: in the long run we can allow SAFE users to attach a wide variety of insurance contracts meant to protect their positions against liquidation
  • No exposure to assets with counterparty risk: H2O will initially only be backed by $OCEAN - and plans for V2 are to include datatokens themselves. Borrowers are not exposed to riskier crypto assets or real world collateral.
  • Superior collateral factors: as we improve the efficiency of our collateral auctions and add insurance contracts for SAFEs, we can lower the collateral requirements for borrowing H2O.

What are the risks of minting H2O?

Using a GEB deployment and/or its associated stable asset doesn't come without risk. Before you decide to deposit your assets in the protocol or acquire the stable asset, you should do your research and understand the risks involved.
This section will only give an overview of the main risks associated with GEB. If you'd like to dive deeper, you can check out every module in the System Contracts section of the GEB documentation.

Smart Contract Bugs

The core GEB contracts were audited by OpenZeppelin. Other helper contracts were audited by Quantstamp.
However, security audits do not completely eliminate smart contract risk. We urge you not to put your life savings or money you can't afford to lose into any GEB deployment or its associated stable asset.
A further security review is being made in collaboration with Halborn Inc.

Admin Keys

The very first GEB deployment will need to be fully managed in its initial stages because of the risks tied to the PID controller managing the system as well as the need for more infrastructure to be built so the protocol can be automated.
Subsequent GEB deployments may or may not be governed, depending on whether the community will want to add more collateral types as time goes by.
While a GEB is fully managed/governed, almost all of its components can be upgraded and manually set up. Once it's governance minimized, only a few components can be upgraded and fewer parameters can be changed.
You can take a look at the Governance Minimization Guide to see what will need to be done so that a GEB can be governance minimized. Stay alert for more updates from the team regarding a timeline for H2O governance minimization.
Until most of the H2O protocol is governance minimized, initially, the protocol is managed by a multisig.

PID Controller

PID control is still a novel concept in DeFi. Only RAI has been managed by an on-chain controller and beyond that there is no historical data that can help with the controller's modelling and simulations.
If the controller is too slow it may be completely ineffective in stabilizing H2O or other stable assets. If it's too strong, it may destabilize the system.
We’ve done our best to take advantage of the research and experience that has been generation with respect to the operation of the RAI stablecoin.

Suboptimal Parameters

Governance may set suboptimal parameters for:
  • Debt auctions which can lead to an excessive amount of protocol tokens being printed
  • Collateral auctions which may not give a good enough incentive for biddingGlobal Settlement which may delay SAFE processing and collateral redemption indefinitely
There are many more parameters within the System Contracts which may be suboptimal.

What are your benchmarks to evaluate the success of H2O?

The success of the Ocean Market V4 (perhaps measured in datatokens transacted), transactional volume of H2O, price stability, and total value locked (TVL).

What is your vision for H2O in the coming future?

We see H2O becoming the dominant Medium of Exchange (MoE) and Unit of Account (UoA) for the Web3 data economy.

With many players in this space, how confident are you in reaching your goals?

Web3 is the future. At H2O, we believe data is rapidly becoming a new asset class unto itself, and that Ocean Market will be the predominant exchange for data in the decentralized web. In other words, we’re working with some of the biggest players in the space of data-as-value already. Tokens with less data-oriented use cases are not our competition.

Who is the main target group for the H2O token? Is it meant to be used by everyone?

H2O is primarily for those looking to transact on the Ocean Market with a stable Medium of Exchange, and Unit of Account.
Ocean Market will be huge in the future, and H2O will be an integral part of exchanging value in it, and other Ocean-powered data marketplaces. We also foresee data as a new asset class being the foundation for a new generation of DeFi protocols, so H2O is for DeFi users looking to engage with new types of assets and protocols.

Is it possible to get liquidated after borrowing H2O when OCEAN heavily decreases in price?

Liquidations are possible in the protocol, here’s how that occurs:
A SAFE is a type of “Vault” Smart Contract which allows users to deposit a specific type of collateral, in order to generate another type of asset. Specifically, in this case, $OCEAN is deposited to generate (borrow) $H2O.
Keepers are users whose job is to make sure that the required surplus of collateral exists within the protocol at all times. Specifically, they scan for any SAFEs that are under-collateralised and trigger a liquidation (auction of assets) occurs if the collateralization ratio of a SAFE (debt position vault) falls below the required minimum level, called the Liquidation Ratio.
During the Liquidation process, enough collateral is sold to cover the debt along with a Liquidation Penalty, leaving the remaining collateral available for withdrawal. Typically, another class of Keeper will scan the blockchain for auctions and participate in them.
However, we will be launching Safe Saviors and other insurance-like tools to reduce the risk of liquidations, soon after the end of the open beta.

How does the provisioning of liquidity for H2O tokens working? Is a swap back to $OCEAN tokens possible at any time?

Our strategy is to incentivise several liquidity options for H2O. I imagine in an open DeFi marketplace there will likely emerge efficient ways to swap H2O and Ocean.
With respect to collateral providers depositing $OCEAN into SAFEs, there is no lockup period being implemented when depositing $OCEAN to mint $H2O. However, before the “ungovernance” / decentralisation / governance minimisation process is complete, POSEIDON token holders may vote to change this and other system parameters.

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On this page
How does H2O work from the User’s perspective?
How does H2O work/behave?
Can you summarize the behavior of the H2O redemption rate?
What is H2O in technical detail?
GEB Overview Diagram
Is H2O a stablecoin?
Why should I stake on H2O?
Is H2O a rebase token?
Why would I hold H2O when the system devalues the token?
How does H2O affect current $OCEAN token holders?
What is the Money God League?
What is Reflexer Labs role in the initiative?
Isn't H2O growth bounded by OCEAN growth?
How do you plan to grow H2O so it achieves its maximum potential?
What happens to H2O if the price of $OCEAN drops?
What is the potential for price fluctuations with the H2O system?
What happens if the redemption rate is positive and I just add more collateral in my SAFE instead of repaying my debt?
What is the difference between the redemption rate and the borrow rate?
Why would I want to hold something that is not pegged and yet does not behave like OCEAN, ETH or BTC?
Is there a minimum lockup period?
Why are the advantages of minting H2O?
What are H2O's use-cases?
Will H2O always return to the same initial value/peg?
What are the assumptions behind H2O's mechanism?
How will the liquidation process work?
How is the price of H2O adjusted in real-time?
What is the simulation model of the H2O ecosystem?
What are the risks of providing liquidity?
How much $OCEAN will be deposited as collateral in the H2O system?
How does the H2O ensure lesser centralization? Is H2O fully decentralized?
What are the benefits to the Ocean community?
How would you differentiate H2O from other non-pegged stable assets in the market?
Can you give an example of how H2O will behave on account of Ocean capital inflow/outflow?
Will I be charged fees?
How will I be incentivized to be an H2O holder?
What are the risks of minting H2O?
What are your benchmarks to evaluate the success of H2O?
What is your vision for H2O in the coming future?
With many players in this space, how confident are you in reaching your goals?
Who is the main target group for the H2O token? Is it meant to be used by everyone?
Is it possible to get liquidated after borrowing H2O when OCEAN heavily decreases in price?
How does the provisioning of liquidity for H2O tokens working? Is a swap back to $OCEAN tokens possible at any time?