Kava (KAVA)
What Is Kava (KAVA)?
Kava is a cross-chain DeFi lending platform that allows users to borrow USDX stablecoins and deposit a variety of cryptocurrencies to begin earning a yield.
The Kava DeFi hub operates like a decentralized bank for digital assets, allowing users to access a range of decentralized financial services, including its native USD-pegged stablecoin USDX, as well as synthetics and derivatives. Through Kava, users are able to borrow USDX tokens by depositing collateral, effectively leveraging their exposure to crypto assets.
Built on the Cosmos blockchain, Kava makes use of a collateralized debt position (CDP) system to ensure stablecoin loans are always sufficiently collateralized. If a borrower fails to maintain their collateral above a required threshold, the Kava liquidator module will seize collateral from failing CDPs and send it to the auction module for sale.
In addition to Kava's USDX stablecoin, the Kava blockchain also includes the native KAVA token. This is a utility token used for voting on governance proposals and also functions as a reserve currency for when the system is undercollateralized.
Who Are the Founders of Kava?
Kava Labs, Inc., the parent company behind Kava, was co-founded by Brian Kerr, Ruaridh O'Donnell and Scott Stuart.
Brian Kerr is the current CEO of the platform and previously worked as an advisor for several blockchain and crypto platforms, including Snowball and DMarket. Kerr has had a varied and successful career and was educated in business administration.
Ruaridh O'Donnell, an MSc Physics graduate, is listed as Kava's second co-founder and is a former engineer and data analyst at Levelworks. The final Kava co-founder is Scott Stuart, a former professional poker player who currently works as a product manager at Kava Labs.
Kava Labs also lists a dozen other employees and contractors, arguably the most prominent of which is Denali Marsh — an experienced smart contract developer and auditor who occupies the role of blockchain engineer at Kava.
What Makes Kava Unique?
Kava differentiates itself from other similar decentralized lending platforms thanks to its support for cross-chain assets.
Thanks to Cosmos’ zones technology, Kava users will be able to deposit a wide array of native assets, including Bitcoin (BTC), XRP, Binance Coin (BNB) and Binance USD (BUSD). But for now, cross-chain assets must be wrapped as Binance Chain (BEP2) assets.
Likewise, Kava also allows users to earn a yield by minting its USDX stablecoins. Once minted, these USDX tokens can be contributed to Kava's money market, known as HARD Protocol, earning the user a variable APY while their collateral remains secured by Kava.
Kava users can run their own staking node to earn KAVA rewards directly from the protocol. However, only the top 100 Kava nodes (also known as validators) are eligible to receive these rewards. Beyond this, KAVA holders can stake their tokens on a variety of compatible exchange platforms, like Binance and Huobi Pool.
Beyond this, users can earn regular KAVA rewards by minting USDX on the platform. The system also employs several mechanisms to burn KAVA tokens, helping to reduce the circulating supply.
How Is the Kava Network Secured?
Kava is built on Cosmos, and uses a Tendermint-based proof-of-stake (POS) consensus mechanism to ensure the integrity of the network.
This uses a network of validator nodes for confirming transactions. These validator nodes must put up collateral to take up the duty of validating transactions. If validators misbehave or fail to meet rigorous minimum requirements, their stake will be penalized — thereby incentivizing validators to remain honest and efficient.
Kava's smart contracts have been audited by multiple independent blockchain and crypto security firms, including CertiK, B-Harvest and Quantstamp. To date, no vulnerabilities have been found.
How Does Kava Work?
Kava allows users to lock assets in special smart contracts and borrow USDX.
On the back-end, this creates what is called a collateralized debt position (CDP), a contract designed to ensure the value of USDX remains pegged to the U.S. dollar.
To set up a CDP, users:
- Deposit crypto : Users can connect their wallets to deposit cryptocurrencies.
- Create a CDP : Kava locks the deposited cryptocurrency in a smart contract.
- Create USDX : Users are issued USDX loans based on the value of the CDP.
- Close a CDP : Users repay the debt plus a fee to unlock their collateralized crypto.
- Withdraw crypto : Once the crypto is returned to the user, Kava burns the USDX.
Collateralization Ratio
You can think of the collateralization ratio as the mechanism that helps protect the protocol from volatility that would reduce the value of the collateral.
On Kava, USDX is often over-collateralized, meaning that borrowers must deposit an amount that is typically higher than the value of USDX minted by the protocol.
The ratio of debt-to-collateral is then used to calculate the liquidation price.
For example, a collateralization ratio of 200% would mean that a user will get liquidated if the value of the cryptocurrency locked in the protocol falls below 2x the USDX they have borrowed.
If the debt-to-collateral value drops below a specified threshold, the collateral held in smart contracts will automatically be liquidated and burned.
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Cryptocurrency