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Kolibri Finance kDAO: The Maker DAO of Tezos

By 2sats | 2sats | 5 Mar 2022

*obligatory not financial advice*


What is Kolibri Finance?

Kolibri is basically the Maker DAO of the Tezos blockchain. It allows its users to leave XTZ as collateral to mint the decentralized kUSD stablecoin. It is one of the biggest dApps on Tezos and its stablecoin has established itself as an integral part of the Tezos ecosystem, since it’s practically the go to USD alternative there.

Minting kUSD works by taking over-collateralized loans. You deposit XTZ into an oven to create kUSD that has in total less value than your supplied XTZ and you can only ever get your XTZ back if you return your borrowed kUSD with interest. This is done to ensure that all outstanding kUSD are fully backed and secure.

Taking a loan to mint a stablecoin is great when you need liquidity but don't want to sell your XTZ and you can pay it back and redeem your funds whenever you want. But this is not without risk because should the value of the XTZ collateral fall to a point where it no longer backs the minted kUSD then it would put the entire protocol at risk. That’s why Kolibri has some features to ensure that this will never happen.

Should your collateral fall to a certain point but still be above the value of the loan, then it will be possible for other people to pay your loan back to receive your funds with an instant profit. Kolibri also has a liquidation pool, where owners of kUSD tokens can earn a yield by pooling their stablecoins together and have to protocol use their funds automatically to pay back loans that are at risk.

There are mechanisms to keep the value of kUSD close to that of the real US dollar. When you are minting stablecoins, the protocol always assumes that 1 kUSD has a value of $1, so should the value rise above that, then people could sell kUSD at an instant profit by minting it, which would increase the supply and lower the price. The interest, that borrowers have to pay back, and the stability fee, that people that hold kUSD in a savings pool are earning, can also be adjusted to increase or lower demand.

The platform also offers 2 ways of earning interest with your kUSD. Like mentioned, you can stake them in a liquidity pool that is used to pay back loans that are at risk and earn a yield of about 10% on your kUSD. Alternatively, you can also stake them in a savings pool to earn the stability fee, which gives you a variable APY that is currently about 8%. Both options are giving you a much higher interest rate than any bank account.

However, both pools have still not been audited! The liquidity pool has even been temporarily disabled because somebody managed to exploit it and remove all the provided funds, thankfully the hacker has returned all funds and nobody has lost any money because they only wanted to show that the smart contract is flawed. The founders are still working on both pools and will hopefully have them soon audited to prove them as secure.

Kolibri is well positioned in the Tezos ecosystem and provides a useful service, but there is also a strong competitor. Youves is a dApp on Tezos that also provides a decentralized stablecoin that is backed by XTZ. Youves also allows the creation of other synthetic assets like synthetic BTC, a sort of index for the main DeFi tokens and soon also synthetic gold and many more. Kolibri is older and more people are using its stablecoin, but youves has much more utility and is improving much faster.



The kDAO Token

Kolibri Finance has its own governance token called kDAO. It is used to vote on proposals to change and update the protocol.

It has a max supply of 1 million tokens. 15% of the entire supply was airdropped to early users of the platform, 30% is distributed via farms where you can stake kUSD, relevant LP tokens and QLkUSD (tokens that you get for putting kUSD into the liquidation pool), 20% were given to the founders and the remaining 35% are in a treasury that is controlled by the DAO. So most of the supply is going to the users of the platform and the stablecoin.

The value of the kDAO token depends on how many funds are held in the Kolibri smart contracts. The more money is depended on the governance, the more demand there will be for voting rights. The dApp offers a needed service to the Tezos blockchain and is well established within it. If Tezos as a whole performs well then so will Kolibri. However, youves is a very strong competitor.

Currently you cannot buy the token on any centralized exchange, but you can buy it on QuipuSwap if you have XTZ and you can earn it yourself by farming. You can store your tokens in a Temple Wallet, which you can also use to connect to the Kolibri Finance dApp.




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